Abstract

This paper empirically examined the broad money demand function and its stability in two West African countries namely Cote d’Ivoire and Ghana covering the period of 1980 to 2015 using the Autoregressive Distributed Lag (ARDL) Bounds testing procedure. The empirical results confirm the stability of the money demand function and support the choice of M₂ as a viable instrument for policy implementation in both countries cited above. The study also demonstrates that a long-run relationship exists between money aggregate (M₂) and its determinants during the study period. In fact, the real income tends to be the most significant factor explaining the demand for broad money in both countries. In addition, the overall short run estimation of our model is statistically significant for Cote d’Ivoire and insignificant for Ghana at the conventional level. This means that money demand is stable for Cote d’Ivoire in short run and unstable for Ghana in the same period. It is recommended that monetary policy authorities should continue to implement policies that will reinforce macroeconomic stability and facilitate economic growth.

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