Business & Management Studies

Abstract

This paper examines Financial Innovation and the Stability of Real Money Demand in Cameroon using annual secondary data from the world development indicators covering the period 1979 to 2018. Relying on the Autoregressive Distributive Lag Technique (ARDL), financial innovation signalled a negative and significant effect on real Broad money demand (M2) while real GPD had a positive and significant effect on real M2 demand. The results echoed from the stability checks using CUSUM and CUSUMQ techniques indicated that real M2 is stable despite financial innovations. With the aid of the error correction technique (ECT), the paper estimates the speed that the market may take to eliminate exogenous and endogenous shocks in real M2 demand. The study recommends that authority should use money supply as an instrument of monetary policy since the demand for real M2 is stable in Cameroon.