How stable is the demand for money in African countries?

Abstract

Purpose

Studies that have addressed the stability of the demand for money in African countries are rare. A few papers have addressed the issue in a small number of individual countries. For cross‐country comparison, this paper aims to investigate the stability of the M2 demand for money in 21 African countries using quarterly data over the period 1971Q1‐2004Q3.

Design/methodology/approach

A standard money demand function is designed. It is estimated using a bounds testing approach to co‐integration and error‐correction modeling.

Findings

Application of the CUSUM and CUSUMSQ tests to the residuals of error‐correction models reveals that in almost all 21 countries, M2 demand for money is stable. This could be due to incorporating the short‐run adjustment process in testing for the stability of the long‐run elasticity estimates.

Research limitations/implications

Due to data limitations, the study could not be extended to all countries in Africa.

Originality/value

This is the most comprehensive study in the literature for Africa.

Citation

Bahmani‐Oskooee, M. and Gelan, A. (2009), "How stable is the demand for money in African countries?", Journal of Economic Studies, Vol. 36 No. 3, pp. 216-235. https://doi.org/10.1108/01443580910983825