An Error Correction Approach To The Demand For Money In Ghana

Studies of money demand in Ghana have, more often than not, neglectedrntesting for its stability although a stable money demand function is necessaryrnfor the effectiveness of monetary policy. Furthermore, attention has not beenrnpaid to the order of integration of the variables in the estimated money demandrnfunction . Most of these studies did not use the newly developed errorrnrncorrection techniques to avoid running spurious regressions. This Thesisrnimproves on these limitations. It uses co integration and error correction modelsrnto analyses the determinants of the demand for money. The results indicate thatrn(i) the money demand function in Ghana was stable over the period of studyrn(1969-1995); (ii) the money demand series is an I(1) process; (iii) that bothrndefinitions of money (Ml & M2) are stable; and (iv) that current income,rndomestic interest rate, foreign interest rate and financial liberalization were thernmain determinants of money demand.

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