This study employs annual time series data from 1982 to 2019 for sixteen (16)
West Africa countries to investigate the stability of money demand in these
countries and the feasibility of the proposed West African Monetary Zone.
From a standard money demand function to a bounds test method,
co-integration and error correction model, we found significant heterogeneity
and divergence across the sixteen (16) countries. The highlight of the findings
is that co-integration of the money demand function is only recorded in
Ghana but exhibited partial stability from the CUSUMSQ (cumulative sum
squared) test. In Nigeria, the biggest economy in West Africa has no
co-integration and is only partially stable from the results of the CUSUM test.
The significant divergence across these countries as indicated by the test of
co-integration, CUSUM (cumulative sum) test, CUSUMSQ (cumulative sum
squared) test, the short and long-run factors and error correction in the event
of a shock, makes it crucial for the need to include country specific idiosyncratic
monetary policy features in the event of a monetary zone in West Africa,
and crucial to ensure convergence in their money demand function.