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ARDL Bounds Tests for Neutrality and Superneutrality of Money towards Monetary Integration of West Africa

Mogaji, Peter Kehinde (2018): ARDL Bounds Tests for Neutrality and Superneutrality of Money towards Monetary Integration of West Africa.

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Abstract

Money neutrality is about what the long run relationship between money and price imply for the use of monetary aggregates in the conduct of monetary policy. The argument is that if a single monetary policy is prevalent in a monetary union, it is significant that members of such monetary integration should exhibit similarities in behaviour of money. The West African subcontinent (proposing monetary integration) deserves feasibility assessments in aspects of neutrality and superneutrality of money. This study, which is significant for the proposed monetary integration of the West Africa, provided answers to the question on if money matters within the proposed monetary union. The autoregressive distributed lag (ARDL) bound testing cointegration approach developed by Pesaran et al (2001) was employed to test money neutrality and money superneutrality in this research work. This cointegration method is no common in the investigation of neutrality and superneutrality of money. Relevant annual data (real output, quasi-money, inflation) collected for the six WAMZ countries (The Gambia, Ghana, Guinea, Nigeria, Liberia and Sierra Leone) for the purpose of this study span over the period between 1980 and 2014. Finding and results generated in this study produced evidence to suggest that money is not neutral in four of the six (except for Liberia and Guinea) WAMZ countries. The superneutrality tests (and other sensitivity tests) however reveal more uniform non-superneutrality of money across the WAMZ (apart from the inconclusiveness of the tests in the cases Liberia and Guinea when real exchange rate change was applied; as a well as the non-superneutrality of Liberia when real output growth served in the determination of money super neutrality).

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