The Optimum Quantity of Money in a Situation of Information Asymmetries: Evidence from Cameroon

Abstract

This article is a macroeconomic assessment of the optimum quantity of money to inject into a developing economy in situation of information asymmetries. Starting from Tobin's "absolute liquidity rule", and under the hypothesis of a sub-optimal macroeconomic monetary equilibrium, a method of optimizing the money supply is proposed, based on a "monetary adjustment coefficient". It takes into account the effective growth rate, the potential growth rate and the current money supply. It appears, in the case of Cameroon, that the quantity of money in circulation is 30% lower than its optimal level compatible with the potential product, hence the need for an expansionary monetary policy, including monetary and credit easing measures. It is thus proposed to decision makers to introduce a monetary adjustment coefficient when elaborating monetary policy to be implemented in the country.