Fiscal Policy, Monetary Policy and Stock Market Activity in Ghana

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The study examined the impact of fiscal and monetary policy actions on the stock market in Ghana. In pursuing this I probed the inter-temporal interaction between fiscal policy, monetary policy and stock market activities in Ghana and investigated the efficiency of the stock market with respect to fiscal and monetary policy information. The theoretical contention of the Keynesian Economics that a policy mix of fiscal and monetary policy is the best in achieving macroeconomic objectives informed the study. Empirical evidence supported the proposition but its interaction with interest rate suggests that such policies may have concurrent effect on stock market activities. Stock market activity is either enhanced or disrupted as a result of changes in any of the policy effects. It was found that, both from common correlation analysis to recent econometric modeling; indicate fiscal policy actions have significant effects on stock market activities and not the other way round. In addition, there is a unidirectional causal effect of fiscal policy actions on stock market activity. It was thus concluded that the fiscal policy actions do matter in the activities of stock market activities and, perhaps, becoming more important over time. Thus such actions should be incorporated in the pricing of securities in the market to eliminate all inefficiencies in the market and build investor confidence. The study recommends that government must synchronizes its fiscal policy actions with activities in the stock market among other
A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Commonwealth Executive Master of Business Administration