The Effect of Financial Innovations on Demand for Money in Ghana

Abstract

This paper aimed at analyzing the effect of financial innovations on demand for money function in Ghana using quarterly time series data, 1990Q1 – 2021Q4. The unit root test of all the variables showed that the variables were integrated of order one, hence, Dynamic OLS regression was applied in estimating the long run parameters. It was found that the introduction of financial innovations variables help explained the variation in demand for money functions more and also, aid in the stabilization the functions estimated. Also, interest rate, inflation, exchange rate, real income, M2+/M1 ratio, dummy variable for mobile banking and domestic credit to private sector were variables that influenced demand for money. Finally, the M2+/M1 ratio and the introduction of ATM encouraged increasing monetization of the economy and financial depending while the introduction of mobile banking and domestic credit to private sector helped in encouraging institutional and technological advancement in the nation.