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The paper was an empirical analysis of the stability of money demand in Zambia between 1984 and 2021. The money demand function tries to explain the factors that influence people’s demand for money in an economy. The determinants included real income, exchange rate, inflation rate and interest rate. Using E-views 9.0, an appropriate model was estimated for statistical analysis. In the analysis of data, unit root tests were done to check the order of integration of the variables. Furthermore, to test for long term equilibrium relationships among variables the Augmented-Dickey Fuller (ADF) was used to test procedure on the residuals. Out of the many ways of testing for normality, this paper chose the Jarque-Bera test to conduct the normality test on the variables. From this study’s results, the bound test showed that there is a long run cointegration relationship among demand for real money balances, real GDP, interest rates, exchange rate and inflation in case of broad money aggregates. In the long run, all the independent variables are significant determinants of money demand which will be positively affected by percentage changes in exchange rates and negatively by percentage changes in gross domestic product, inflation, and interest rate. The study found that for the implementation of monetary policy in any economy to be successful, it relies heavily on the instruments of monetary policy used as well as the structure of the economy. However, for emerging economies such as Zambia, there are special hurdles that may make the implementation of monetary policy less effective in the achievement of the monetary policy goals. From the findings, it is recommended that as the process of modernizing monetary policy frameworks are implemented in addressing emerging economic challenges, there is need to continue with monetary aggregates in monetary policy conduct.
Lukwesa et al. (Sat,) studied this question.