Economics Literature (2019), 1(1): 24-36 doi: 10.22440/elit.1.1.2 Research Article Does Interest Rate Influence Demand for Money? An Empirical Evidence from Ghana Samuel Tawiah Baidoo 1 Hadrat Yusif 2 Received: 13.02.2019; Revised: 06.04.2019; Accepted: 30.04.2019 This paper investigates whether interest rate influence demand for money in Ghana using annual time series from 1980 to 2016. Demand for money is measured by broad monetary aggregate (M2+) whilst the rate of interest is proxied by the 91-day Treasury bill rate. Other variables included in the study are real income, inflation and exchange rate. The bounds testing approach to cointegration within the autoregressive distributed lag (ARDL) framework is employed as the estimation technique. The results show that interest rate has no significant influence on demand for money in Ghana in both the long and short run. It is also found that real income has positive and significant effect on demand for money in the long run. In the short run, inflation exerts negative and significant influence on money demand. Based on the insignificant relationship between interest rate and money demand, it is recommended that monetary authorities should not focus much on interest rate when designing monetary policies that are geared towards stabilizing the economy to expedite economic growth. However, authorities should focus more on inflation and real income as these variables exert significant effect on demand for money. JEL codes: E41, E43, E52, C22 Keywords: Demand for money; interest rate; monetary policy; ARDL; Ghana 1 Introduction The Bank of Ghana was established in 1957 to replace the West African Currency Board and from that time both fiscal and monetary policies (exchange rate targeting and selective credit control) were employed to manage the Ghanaian economy. Unfortu- nately, macroeconomic instability continued to characterize the country, especially in 1 Corresponding Author: Department of Eco- nomics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana. (e-mail: samueltawiah- baidoo@yahoo.com). 2 Department of Economics, Kwame Nkrumah Uni- versity of Science and Technology, Kumasi, Ghana. the 1970s and early 1980s. The government adopted International Monetary Fund’s (IMF)/World Bank’s structural adjustment programme (SAP) and financial liberaliza- tion programmes in the 1983. With financial liberalization, the use of monetary policy for economic management deepened. In 1982, monetary authorities shifted from exchange rate targeting to monetary targeting as a means of addressing the macroeconomic instability. Again in 1992, open market operation (OMO) was adopted by the Bank of Ghana (BoG) to deliver stable low inflation (Kwakye, 2012). With the adoption of OMO, inflation uncertainty still remained a contentious subject as 24