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Inflation Dynamics and Policy Mix in Ghana

Author

Listed:
  • Leshoro Temitope Lydia A.

    (Economics Department, University of South Africa (UNISA))

Abstract

Research background Ghana was the second African country to adopt the inflation-targeting framework in 2007. The country faced persistently high levels of inflation, exceeding 100 percent in the early 1980s. Since the adoption of the inflation targeting regime, the inflation rate has decreased and remains below 20 percent. Purpose Given the importance of the policy mix in achieving price stability and economic growth in any economy, this study examines which policy mix is more effective in determining the inflation dynamics in Ghana. Research methodology Annual data from 1980 to 2021 and the autoregressive distributed lag (ARDL) were used, firstly on individual monetary and fiscal policy models and then jointly on the policy mix model. Results Results show that fiscal policy is effective and significant in determining inflation dynamics in Ghana in the long run, while monetary policy is ineffective, less dominant, and statistically insignificant. Monetary policy is effective and significant in the short run. Based on the findings of the study, policy recommendations include giving more attention to the possible coordination of fiscal and monetary policies than has been previously given. Novelty The study’s originality is in examining if the monetary or fiscal policy (policy mix) effectively regulates the inflation rate in Ghana; the inflation target and the exchange rate as external shocks were included, amongst others and estimating the separate and combined models for the policy mix.

Suggested Citation

  • Leshoro Temitope Lydia A., 2024. "Inflation Dynamics and Policy Mix in Ghana," Folia Oeconomica Stetinensia, Sciendo, vol. 24(1), pages 124-143.
    • Handle: RePEc:vrs:foeste:v:24:y:2024:i:1:p:124-143:n:1008
    DOI: 10.2478/foli-2024-0008
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    References listed on IDEAS

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    More about this item

    Keywords

    ARDL; monetary policy; fiscal policy; inflation; Ghana;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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