Long-Run Money Demand in Ghana: In Search of Stability

Abstract

In this study, we employed annual time series data of Ghana from 1982 to 2019 to examine the long-run money demand function and its stability. Through the methods of co-integration, Vector Error Correction Model, Auto-regressive Distributed Lag bounds test, CUSUM test (cumulative sum of the recursive residuals) and CUSUM sq test (cumulative sum squared of the recursive residuals) we established total stability and long-run relationship between money demand function and its determining factors. Accordingly, our key recommendation is for monetary policymakers to improve on their supervision and monitoring role in the financial market and institutions to avert failures within the sector such as what happened beginning 2014 with the proliferation of several Ponzi-schemes. Monitoring and supervision are key to the maintenance of confidence and stability in the monetary system.