Money Supply, Government Borrowing and Inflation Nexus: Case of Ghana

Loading...
Thumbnail Image
Date
AUGUST, 2016
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
This study examined the relationship between money supply, government borrowing and inflation in Ghana from 1981 to 2013. The study adopts a quantitative methodology framework and specifically employs econometric technique (Auto-Regressive Distributed Lag Models) to investigate the relationship between money supply, government borrowing and inflation in Ghana. The stationarity test done using the Augmented Dickey Fuller (ADF) and Philip Peron (PP) tests reveals that the variables under study were stationary at the levels and first difference hence justifying the use of the Auto-Regressive Distributed Lag Models (ARDL).The ARDL technique to cointegration shows that there is long run relationship among the variables. The long run results reveal that External Debt Stock is positively related to Inflation, however not significant. Furthermore, Broad Money Supply and Interest Rate are positively and significantly related to Inflation. Exchange Rate on the other hand is negatively and significantly related to Inflation. Contrary to the long run, External Debt Stock in the short run was positively and significantly related to Inflation. Broad Money Supply and Exchange Rate were negatively and significantly related to Inflation. Interest Rate was positively and significantly related to Inflation in the short run. The estimated coefficient of ECM of -0.7410 reveals that about 74.10% of the errors in the short run are corrected in the long run. The study therefore recommends that in order to maintain low levels of inflation, the government of Ghana should control borrowing and the supply of money in the economy.
Description
A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for the Award of Master of Science Degree in Economics.
Keywords
Citation