Money and income causality in developing economies: A case study of selected countries in sub-Saharan Africa

This paper tests money-output causality and non-neutrality in five African countries, all members of the West African Monetary Union, using quarterly data for the period 1964 to 1993 and applying recent robust cointegration and dynamic modelling techniques. The real exchange rate, the price level and nominal money balances are used as determinants of long-run real output. Evidence indicates stronger money-output causality and non-neutrality for countries at a relatively more advanced stage in their industrial development such as Côte d'Ivoire and Senegal. The findings also show that Côte d'Ivoire is more affected by both permanent and transitory adjustments of the real exchange rate than the other members of the West African Monetary Union. The overall results are consistent with the literature supporting the non-neutrality of money in developing countries.