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


Department of Economics, University of Lagos, Lagos, Nigeria


The paper re-examines the money demand function in sub-regions of Sub-Saharan Africa and its sub-regions with annual time series spanning between 1980 and 2017. Panel homogeneous Autoregressive Distributed Lag, panel co-integration tests, and Dumitrescu and Hurlin panel causality test were employed for analysis. The empirical results showed a co-integrating relation between money demand and its determinants in SSA and its sub-regions. The results also indicated divergence in terms of short-run determinants, long-run determinants, and error correction due to shocks across the sub-regions. 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. 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 stabilization, which will consequently lead to money demand stability in the whole region.