Author(s)

Michael Asiedu^1*, Pious Opoku², Anwar Mohsen AbdElghaffar³, Patrick Bimpong⁴, Frank Yeboah⁵

¹School of Finance, Zhongnan University of Economics and Law, Wuhan, China.
²School of Accounting and Finance, Zhongnan University of Economics and Law, Wuhan, China.
³Department of Accounting and Auditing, Assuit University, Assuit, Egypt.
⁴School of Accounting and Finance, Zhongnan University of Economics and Law, Wuhan, China.
⁵Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana.

This study employs annual time series data from 1982 to 2019 for sixteen (16) West Africa countries to investigate the stability of money demand in these countries and the feasibility of the proposed West African Monetary Zone. From a standard money demand function to a bounds test method, co-integration and error correction model, we found significant heterogeneity and divergence across the sixteen (16) countries. The highlight of the findings is that co-integration of the money demand function is only recorded in Ghana but exhibited partial stability from the CUSUMSQ (cumulative sum squared) test. In Nigeria, the biggest economy in West Africa has no co-integration and is only partially stable from the results of the CUSUM test. The significant divergence across these countries as indicated by the test of co-integration, CUSUM (cumulative sum) test, CUSUMSQ (cumulative sum squared) test, the short and long-run factors and error correction in the event of a shock, makes it crucial for the need to include country specific idiosyncratic monetary policy features in the event of a monetary zone in West Africa, and crucial to ensure convergence in their money demand function.

Money Demand, Stability, Co-Integration, ARDL Test, CUSUM and CUSUMSQ

Asiedu, M. , Opoku, P. , AbdElghaffar, A. , Bimpong, P. and Yeboah, F. (2020) Long-Run Money Demand Function and Stability among Sixteen (16) West Africa Countries. Journal of Financial Risk Management, 9, 390-417. doi: 10.4236/jfrm.2020.94021.