Inflation targeting, inflation and economic growth in Ghana (1980-2013): an empirical investigation
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Date
MAY 2016
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Abstract
The Bank of Ghana (BoG) adopted inflation targeting as a nominal anchor in 2007 to
address macroeconomic stability. Given Ghana’s chequered history of high volatile
inflation and the recent adoption of inflation targeting as an important monetary policy
instrument, it is significant to investigate the effect of inflation targeting and inflation on
economic growth in Ghana. However, the only known study that investigated the effect of
inflation targeting and inflation on economic growth in Ghana did not take inflation
volatility into account. This study examines the impact of inflation targeting, inflation level
and inflation volatility on economic growth in Ghana. The study used Autoregressive
Distributed Lag (ARDL) model to analyze time series data on inflation and real per capita
GDP from 1980 – 2013. The results indicate that inflation targeting has a positive and
statistically significant impact on economic growth in the long-run, inflation level has a
weak negative and significant impact on economic growth in the short-run and inflation
volatility has a negative and significant impact on economic growth in both short-term and
long-term. Therefore, it is recommended that BoG should strengthen inflation targeting by
ensuring a stable financial environment as well as monetary policy accountability and
credibility. Also, Ghana needs a comprehensive mix of macroeconomic reforms. Thus the
BoG and Ministry of Finance (MoF) should implement interest rate and tax policies that
induce investment efficiency in the economy
Description
Thesis submitted to The Department of Economics of The Faculty of Art and Social Sciences, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for award of Master of Philosophy Degree in Economics.