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We examine the long run neutrality of money, (LMN, hereafter), in the Economic and Monetary Community of Central Africa (EMCCA) countries, applying Fisher and Seater (1993) Autoregressive Integrated Moving Average (ARIMA) methodology, using different monetary aggregates, money supply in the strict sense (M1), money supply in the large sense (M2) and domestic credit (credit to private sector) during the period 1978-2008. Tests consistently reject the LMN hypothesis. It is found that monetary aggregates have significant and positive impacts on real Gross Domestic Product (GDP) for all EMCCA countries. The results are robust under various sub-periods and the estimated coefficients are stable under two breakpoints corresponding to the dates of central bank reforms and devaluation of the local currency.
age of globalized finance, Forex market efficiency is particularly relevant as
agents engage in arbitrage opportunities across international markets. This study
tests the forward exchange rate unbiasedness hypothesis using more powerful
tests such as the Zivot-Andrews single-break unit root and the KPSS
stationarity (no unit root) tests to confirm that the USD/EUR spot and
three-month forward rates are I(1) in nature. The study successfully employs the
Engle-Granger cointegration analysis which identifies a stable long-run
relationship between the spot and forward rates and generates an ECM model that
is used to forecast the in-sample (historical) data. The study’s findings
refute past conclusions that fail to identify the data’s I(1) nature and
suggest that market efficiency is present in the long run but not necessarily
in the short run.