Money demand in the West African economic and monetary union - the problems of aggregation

Regional monetary integration, financial liberalisation and the adoption of indirect policy instruments continue to change the conditions for monetary policy in the West African Economic and Monetary Union (WAEMU). While the identification of a stable money demand relationship has become a crucial element for monetary policy, differences in economic behaviour between Côte d'Ivoire and the remaining countries may induce instability at the aggregate level. This paper analyses the demand for money for the entire WAEMU, the six smaller member countries, and Côte d'Ivoire. A stable aggregate money demand function is identified and interpreted in light of the results for the sub-regional estimations.