The Stability of Demand for Money in the Proposed Southern African Monetary Union

International Journal of Emerging Markets. 15(2), pp. 222-244 (March, 2020).

A G D I Working Paper WP/19/025

33 Pages Posted: 3 Jun 2019 Last revised: 25 Mar 2020

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Folarin Oludele Emmanuel

University of Ibadan - Department of Economics

Nicholas Biekpe

University of Cape Town (UCT)

Date Written: January 12, 2019

Abstract

This study investigates the stability of demand for money in the proposed Southern African Monetary Union (SAMU). The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community (SADC). A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU. This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions.

Keywords: Stable; demand for money; bounds test

JEL Classification: E41; C22

Suggested Citation

Asongu, Simplice and Emmanuel, Folarin Oludele and Biekpe, Nicholas, The Stability of Demand for Money in the Proposed Southern African Monetary Union (January 12, 2019). A G D I Working Paper WP/19/025 . Available at SSRN: https://ssrn.com/abstract=3386889 or http://dx.doi.org/10.2139/ssrn.3386889

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Folarin Oludele Emmanuel

University of Ibadan - Department of Economics ( email )

Department of Economics
Ibadan, OK Oyo State 900001
Nigeria

Nicholas Biekpe

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

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