Policy consistency and inflation in Ghana
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Date
1996-03
Authors
SOWA, Nil K.
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Inflation appears to be the macro-problem in Ghana for which no antidote has been
found under the economic recovery programme. It is possible that either a wrong diagnosis has been made of the problem, or that certain factors within the economy are preventing inflation from staying within target levels.
Using an error-correction model (ECM), the paper estimates an inflation equation for
Ghana. The convenience of this model is in the fact that all the data series exhibit an
autoregressive scheme of order one: that is they are 1(1) series. In such an instance the
Granger-Engle Theorem shows that the ECM provides the most efficient model. Further,
the ECM unveils some of the short-run dynamics which are missing in other estimation
techniques. The results of the econometric regression showed that inflation in Ghana, in
either the long run or the short run, is influenced more by output volatility than by monetary factors.
An examination is made of the consistency of fiscal deficits. The hypothesis is that
an unsustainable fiscal policy would make government miss some macroeconomic targets.
It is shown that in 1985 and 1989, fiscal policy was consistent. Inflation was well within
target in 1985. For 1986-1988, the government did not maintain consistent fiscal deficits,
and inflation in those years was well above targets.
It is recommended that to control inflation in Ghana, more attention should be paid to
supply factors. Further, government should pursue consistent fiscal policies.
Description
HG 1382 .Z8 s69 1996
Keywords
Inflation (finance ) - Ghana , Fiscal policy - Ghana