Revisiting money demand functions in countries with emerging financial markets
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David Umoru 
, Samuel Manyo Takon , Itam Eyo Eyo , Rose Utsubasha Abuokwen , Georgina Asemota , Beauty Igbinovia , Joseph Nsabe Ndome, Chikulirim Eke Ihuoma , Felix Awara Eke , Chukwuedo Susan Oburota, Scholastica Ashibebonye Abuh-Amasi , Hilary Ekpang Bisong , Mary Uyilowhoma Ojong-Ejoh , Anake Fidelis Atseye , Malachy Ashywel Ugbaka , Affyrock Victor Eyibio
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
Numerous studies have been done on the determinants of money demand in developing countries. Some of these studies neglected variables indispensable to macroeconomic management. This paper estimates the nonlinear effects of non-traditional variables with a special focus on renewable energy consumption, and crude oil market shocks on demand for narrow (M1) and broad (M2) balances in emerging countries using the methodology of the nonlinear error correction model (ECM). We found asymmetrical effects of renewable energy consumption on narrow money balances where its demand increases with renewable energy consumption in all countries except Egypt and Chad. There are asymmetrical effects of oil market shocks on M2. The finding that oil price shocks cause some positive reactions in the desire to hold cash balances in local currencies, especially when the reserve balance is low in Africa, is an original contribution to the literature on determinants of money demand. The substitution effect of currency exchange rate fluctuations is significant.
Keywords: Money Demand, Spendable Cash Balances, Crude Oil Market Shocks, Variations in Monetary Policy Rate
Authors’ individual contribution: Conceptualization — D.U.; Methodology — D.U., M.A.U., A.F.A., and G.A.; Software — D.U., M.A.U., B.I., M.U.O-E., and H.E.B.; Validation — D.U., B.I., G.A. and A.V.E.; Formal Analysis — D.U., S.A.A-A., C.S.O., F.A.E., and I.E.E.; Investigation — D.U., M.A.U., C.E.I., and J.N.N.; Data Curation — D.U., B.I., and R.U.A.; Writing — D.U., B.I., R.U.A., I.E.E., and S.M.T.; Supervision — D.U., M.A.U., and A.V.E.
Declaration of conflicting interests: The Authors declare that there is no conflict of interest.
JEL Classification: E31, E41, E52
Received: 24.04.2024
Revised: 04.08.2024; 17.12.2024; 27.03.2025
Accepted: 21.04.2025
Published online: 24.04.2025
How to cite this paper: Umoru, D., Ugbaka, M. A., Atseye, A. F., Ojong-Ejoh, M. U., Bisong, H. E., Abuh-Amasi, S. A., Oburota, C. S., Eke, F. A., Ihuoma, C. E., Ndome, J. N., Igbinovia, B., Asemota, G., Aduokwen, R. U., Eyo, I. E., Takon, S. M., & Eyibio, A. V. (2025). Revisiting money demand functions in countries with emerging financial markets. Risk Governance & Control: Financial Markets & Institutions, 15(2), 43–58. https://doi.org/10.22495/rgcv15i2p4
