Money demand function in ECOWAS : insights from second- generation panel data analysis

The stability of the demand for money is a crucial element of the monetary policy of any economy. This work provides insight into the factors influencing money demand in the Economic Community of West African states. It presents an empirical analysis of money demand estimations in the region between 1990 and 2022. The optimum quantity theory of money proposed by Friedman is the study's theoretical foundation. The Augmented Mean Group estimator was employed to obtain the long-run coefficients and analyse the non-stationary variables of the study. The results show that real income (positive) and inflation (negative) adequately influence money demand in the ECOWAS region. In addition, it indicates that only five member states (Ghana, Guinea, Liberia, Nigeria, and Senegal) experienced significant changes in the effects of real income on money demand. It is recommended that money supply be the primary tool for ensuring price stability due to its positive relationship with inflation in most of the countries in the region. The central banks in the region should also make the deepening of their financial sectors a priority.