Stability of Money Demand in Sub-Saharan Africa: A Cross-Sectional ARDL Analysis by Income Levels

Ifeoma Enemuo Joy (), Abner Ishaku Prince (), Edet Inim Victor (), Akpan Boniface L. (), Gift Rotimi Grace () and Udo Emmanuel Samuel ()
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Ifeoma Enemuo Joy: University of Nigeria Nsukka, Department of Management, Nigeria
Abner Ishaku Prince: University Abuja, Business School, Abuja, Nigeria
Edet Inim Victor: Department of Economics, Nile University of Nigeria Abuja, Nigeria
Akpan Boniface L.: Department of Economics, Akwa Ibom State University, Nigeria
Gift Rotimi Grace: Department of Business Administration, Kogi State University Kabba, Nigeria
Udo Emmanuel Samuel: Department of Banking and Finance, University of Nigeria, Nsukka, Nigeria

Studia Universitatis „Vasile Goldis” Arad – Economics Series, 2025, vol. 35, issue 4, 78-103

Abstract: This study investigates money demand stability in sub-Saharan African (SSA) countries, utilizing a quarterly dataset spanning a 24 year-period from 1999 to 2023 sourced from the World Bank Indicators and International Monetary Fund. The study disaggregates SSA countries into three income groups, upper-middle, lower-middle, and low-income, to evaluate the magnitude of stability of money demand, both at the panel level and within each income group. This approach provided nuanced insights and robust policy recommendations. The short- and long-term effects of key predictors on real monetary aggregates were assessed by employing cash-in-advance theory and the cross-sectional augmented autoregressive distributed lag (ARDL) model. The findings reveal that real exchange rates, foreign interest rates, and real GDP significantly influence money demand at the panel level, whereas the inflation rate exerts a contractionary effect. At the income group level, the findings reveal that money demand is stable in upper-middle- and low-income SSA countries, whereas lower-middle-income countries display variability, indicating a divergence in levels of economic resilience across income categories. The study’s findings highlight several policy implications and recommendations, as such the study advocates for the adoption of a unified monetary policies framework and a single currency policy, to enhance stability, foster growth, and reduce systemic asymmetries within the region. Additionally, the implementation of inflation-targeting policies is recommended to further consolidate economic stability and promote sustainable development across SSA countries.

Keywords: Money demand; monetary stability; sub-Saharan Africa; real monetary aggregate; foreign interest rate; inflation targeting (search for similar items in EconPapers)
JEL-codes: E31 E41 E43 E52 F34 O55 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:suvges:v:35:y:2025:i:4:p:78-103:n:1004

DOI: 10.2478/sues-2025-0019

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