An Error Correction Approach to the Demand for Money in Ghana
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Date
1997-06
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A.A.U
Abstract
Studies of money demand in Ghana have, more often than not, neglected
testing for its stability although a stable money demand function is necessary
for the effectiveness of monetary policy. Furthermore, attention has not been
paid to the order of integration of the variables in the estimated money demand
function . Most of these studies did not use the newly developed error
correction techniques to avoid running spurious regressions. This Thesis
improves on these limitations. It uses co integration and error correction models
to analyses the determinants of the demand for money. The results indicate that
(i) the money demand function in Ghana was stable over the period of study
(1969-1995); (ii) the money demand series is an I(1) process; (iii) that both
definitions of money (Ml & M2) are stable; and (iv) that current income,
domestic interest rate, foreign interest rate and financial liberalization were the
main determinants of money demand.
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Keywords
Demand for Money in Ghana