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Journal of Economic Integration 2020 September;35(3) :457-478.
DOI: https://doi.org/10.11130/jei.2020.35.3.457
The Long-Run Stability of Money in the Proposed East African Monetary Union
Simplice A. Asongu1
Oludele E. Folarin and 2
Nicholas Biekpe 3
1African Governance and Development Institute, Cameroon
2University of Ibadan, Nigeria
3University of Cape Town, South Africa
Corresponding Author: Simplice A. Asongu ,Email: asongus@afridev.org
Copyright ©2020 Journal of Economic Integration
ABSTRACT
This study investigates the stability of money in the proposed East African Monetary Union using annual data within 1981-2015 of five countries comprising the East African Community.A standard money demand function is designed and estimated using a bounds testing approach to cointegration and error correction modeling.Findings show that countries exhibit divergence that is articulated in terms of differences in cumulative sum (CUSUM) and CUSUM squared (CUSUMSQ) tests, short- and long-term determinants, and error correction during a shock.Based on the CUSUM and CUSUMSQ tests, results show that Burundi, Rwanda, and Tanzania have stable money demand, whereas the remaining countries, namely, Kenya and Uganda, have partial stability only.During a shock, Kenya is the fastest to restore its long-run equilibrium, followed by Tanzania and Burundi.

JEL Classification
E41: Demand for Money
C22: Time Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
O55: Africa
Keywords: Stable | demand for money | bounds test
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