Financial Innovation, Money Demand Function and Currency Substitution in Africa
Keywords:
real money balance, currency substitution, financial innovation and ARDL
Abstract
This paper examined the relationship among money demand function financial innovation and currency substitution in African countries between 1980q1 and 2016q2 Data for the study were sourced from International Financial Statistics IFS United Nation Statistical Bulletin 2016 and Central Banks of various countries selected The study employed panel ARDL as estimation technique The result from the showed that there was long-run relationship among money demand financial innovation and currency substitution in the selected African countries during the study period The result further showed that income effective exchange rate foreign interest rate savings deposit rate inflation rate and dummy variables have significant impact on money balances However the significant value of exchange rate in the model implies the existence of currency substitution in the selected African countries during the study period The value of dummy variable showed positive but insignificant This shows that financial innovation has not really altered the stability of money demand function in the selected African countries Based on these findings the study therefore recommends that monetary authorities in the selected countries should always ready to use active money balances as an effective instrument in designing monetary policy
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Published
2019-01-15
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