Money Demand Function: A Re-assessment in Sub-Saharan Africa


Department of Economics, University of Lagos, Lagos. Nigeria.


The paper re-examines money demand function in Sub-Saharan Africa (SSA) and its sub-regions with annual time series spanning between 1980 and 2017. Panel homogeneous Autoregressive Distributed Lag, panel co-integration tests, and Dumitrescu & Hurlin panel causality test were employed for analysis. The empirical results showed the existence of a co-integrating relation of money demand and its determinants in SSA and its sub-regions respectively. The results also indicated divergence in terms of short-run determinants, long-run determinants and error correction due to shocks across the sub-regions respectively. The causality test revealed a bi-causal relationship between money demand and its determinants in SSA economies, however, there was divergence in the causality results across the sub-regions respectively. We conclude that price level is the major driver of money demand in Sub-Saharan Africa. The paper, therefore, recommends that governments in SSA economies should employ policies that can enhance price stabilisation; which will consequently lead to money demand stability in the whole region.