The effect of exchange rate on the money demand: evidence from ECOWAS countries

Ibrahim Ouattara () and Balakissa Kone ()
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Ibrahim Ouattara: Dept. of Economics of Alassane Ouattara University of Bouake, Cote d'Ivoire
Balakissa Kone: Dept. of Economics of Alassane Ouattara University of Bouake, Cote d'Ivoire

Economics Bulletin, 2023, vol. 43, issue 4, 1565 - 1580

Abstract: This paper investigates the effects of exchange rate on the demand for money in ECOWAS countries by applying panel (auto-regressive distributed lag) ARDL approach. The results reveal existence of currency substitution. We find that real effective exchange rate has positive long-run effects on the demand for money, suggesting that the expectation effect dominates the wealth effect; real effective exchange rate has negative effects in the short-run implying that the wealth effect dominates the expectation effect. When we use nominal effective exchange rate as alternative of real exchange rate, our results remain similar.

Keywords: Money Demand; Exchange rate; ECOWAS; Currency substitution; Panel ARDL (search for similar items in EconPapers)
JEL-codes: C1 E4 (search for similar items in EconPapers)
Date: 2023-12-30
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