Macroeconomic Determinants of Inflation In Ghana: A Co integration Approach

European Journal of Business and Management, 2013

Macroeconomic variables such as Policy rate, government consumption expenditure, inflation etc. play vital roles in the economic performance of any country. The main objective of this paper was to investigate the effect that inflation, government consumption expenditure and Policy rate have on the real Gross Domestic Product (GDP) in Ghana. Data were taken from the World Bank's World Development Indicators 2004 CD Rom. Policy Rate data were obtained from publications and bulleting of the Bank of Ghana. Annual time series data covering the period from1980-2010 were used. In this paper we employed modern time series econometric methodology such as Unit Root Testing, Co-integration and Vector Error Correction Model (VECM) to model both the long run and short run relationships between inflation, government consumption expenditure and policy rate (independent variables) and Real GDP (dependent variable). The results of our estimates indicate positive long run relationships between inflation, and policy rate with real GDP. However government consumption expenditure has a negative impact on Real GDP in the long run. Also it was revealed that inflation and government consumption expenditure have a positive short run effect on Real GDP whereas Policy rate had an inverse relationship with Real GDP in the short run. Among the variables understudied in this paper, only inflation rate had a significant impact on the real GDP whiles Policy rate and government consumption expenditure have no significant impact on Real GDP in Ghana. It is recommended among others that the Government together with the Bank of Ghana should develop and pursue prudent monetary and fiscal policies that would aim at reducing and stabilizing both the micro and macroeconomic indicators especially inflation targeting so as to boast the growth of the economy.

International journal of business and social research, 2013

The study attempts to identify the macroeconomic factors responsible for inflation in Ghana for the period 1990 to 2009. For this purpose, the time series model is selected based on various diagnostic, evaluation and selection criteria. It can be concluded that the model has sufficient predictive powers and the findings are well in line with those of other studies. The research findings would show that real output and money supply are the strongest forces exerting pressure on the price level to move up the exchange rate depreciation and implementation of ERP helped reduce the level of inflation in Ghana giving evidence that the ERP achieved its basic objective of reducing inflationary trend in Ghana.

Economics Letter, 2016

The determinant of inflation especially in developing countries has assume a controversial debates among economist. The debates is largely intensified due to the facts that inflation in developing countries especially West African countries has defiled any known economic theories mostly because of their structural rigidities. This paper investigated the determinant of inflation in Nigeria, Ghana, and Gambia. The methodology applied is that of Auto Distributed Lag Model (ARDL). Where data are sourced mainly from World Bank Development Indicators. The long run estimate from the ARDL result showed that there is significant long run relationship between inflation rate and the potential determinants while the speed of adjustment shows that adjustments between short run and long run dynamics are significant. However, regarding the statistical significance of the estimated parameters, there is lack of uniformity, hence, some variables that are significant in the case of one country is not in another. Based on the above findings, it is imperative that the federal governments of the countries above put in place all the necessary policies that will have bearing on the factors identified above in order to ensure that there is stability in the prices of goods and services with its attendant macroeconomic benefits.

The study is on Macroeconomic Determinants of Economic Growth in Ghana using cointegration approach. The main objective of this study is to examine the major macroeconomic determinants of economic growth in Ghana between the periods 1970 and 2011 applying the Johansen method of cointegration. All the variables are integrated at first order, as a result the Johansen's cointegration approach was used. The study find out that physical capital and foreign aid had a positive effect on growth in real gross domestic product per capita. In the long run, physical capital, labour force, foreign direct investment, foreign aid, consumer price index, government expenditure and military rule are the significant determinants of growth in real gross domestic product per capita in Ghana. Also, in the short run, foreign direct investment and government expenditure are significant determinants of growth in real gross domestic product per capita. The result shows that there is unilateral directional causality between labour force and physical capital, physical capital and foreign direct investment, foreign aid and physical capital, physical capital and consumer price index, physical capital and military rule, labour force and foreign direct investment, consumer price index and labour force, foreign direct investment and foreign aid. Also, there is bidirectional causality between consumer price index and foreign direct investment. Base on the findings the following policy recommendations are made: Policies should be put in place to increase physical capital and foreign aid. Educational institutions should link up with 157 the corporate organizations to train productive larbour force. Military rule had negative impact on growth in real GDP per capita, therefore, the Government must put in place strategies to protect and sustain democratic rule in Ghana.

European Journal of Business Science and Technology

Maintaining inflation rate at optimal level is among important mechanism of balancing macroeconomic volatility to ensure steady economic growth. This study aims to examine macroeconomic determinants of inflation in Ethiopia. The study employed ARDL model using annual data for period 1981-2020. The ARDL bound test was applied to examine the presence of con-integration between inflation and independent variables. The study also uses augmented Dickey-Fuller and Phillips-Perron unit root tests to check stationarity of the variables. The test result reveals that almost all variables become stationary after the first difference. Accordingly, the result from bound test indicated existence of long run relationship between the dependent variable and explanatory variables entered into the model. The estimated error correction model (ECM) with -0.53 coefficient also confirms the existence of co-integration with high speed of adjustment towards the long run equilibrium. In the long run: real GDP, real effective exchange rate, lending interest rate are positive and significant determinants of inflation whereas broad money supply, real GDP, population growth, gross national saving and previous year imports are found to be the short run drivers of inflation. The finding recommends, among others, measures on reducing real effective exchange rate and utilizing broad money supply in productive economic activities along with supply side should be designed to contain inflation in Ethiopia.

The effects of inflation on the economic life of the citizenry of a country and the theoretical causes have led to numerous researches in the area. Annual inflation rates in Ghana since 1990 show a fluctuating trend depicting how unsuccessful various governments and policy-makers have battled with changes in the general price level. The theoretical and empirical literature on inflation seem to suggest that the causes of inflation are multifaceted, and time specific, as well as dependent on the level of development of a country. This paper attempts to explore some of major triggers of inflation Ghana for decision-making and implementation as well as adding to existing researches in the area. It uses multiple linear regression analysis based on structural equation modelling through path analysis. It concludes that interest rate, proxied by Treasury bill rates, is the only major variable that has a positive and significant effect on inflation in Ghana with regard to the time period studied. Factors such as GDP growth, market capitalisation, gross fixed investment, and foreign direct investments proved insignificant in influencing inflation in Ghana. This study lends support to the fact that inflation reacts positively to changes in interest rates, therefore, governments and policy-makers must consider it critical when pursuing pro-poor growth policies.

MPRA Paper, 2017

The paper examines the exchange rate-inflation nexus for Ghana during the period 1964 to 2013 using annual data. The analysis of the results performed by using the Johansen test (JH), Vector Error Correction (VECM) test, and the Ordinary least square test (OLS). The findings of the result based on the JH, and VECM tests indicate stable long run and short run link between exchange rates and inflation. The results of the OLS test indicate there is positive link between exchange rates and inflation. Policy makers should take into account the findings of the study in order to control inflation. Future studies should consider causality and structural break issues as well as panel study.

Journal of Business and Economic Development, 2019

The phenomenon of inflation is one of the most widely discussed economic issues across the world and for this reason has continued to remain very relevant and visible within the policy domain. This is because it affects the economic fortunes of the principal actors within the economy from the low to the high income. This study adds to the existing literature on inflation by identifying the short and long run factors which influence its trajectory in the Ghanaian economy. The study adopts the Autoregressive Distributed Lag approach to comprehensively establish the long and short run determinants of inflation based on the data set spanning from 1979 to 2016 and the empirical analysis shows that price level is in the long run significantly determined by food crop production, crude oil prices, population, output of goods and services and money supply but in the short run the only variable which does not impact significantly on the price level variable is the interest rate proxied by the policy rate. It is also established that the system is able to correct about 60% of the deviations from its equilibrium position in every quarter. The main recommendation that emanates from the study is that policy makers instead of dealing with inflation mainly from the orthodox monetary perspective must also begin to pay more attention to the supply side issues in the economy.

Ghana Journal of Development Studies, 2015

This paper examines the relationship between inflation and economic growth in Ghana. Using quarterly data from 1986Q1 to 2012Q4. The study employs Co-integration and error correction model. The study reveals that capital, government expenditure, labour force and money supply have a positive impact on GDP. In addition, inflation and interest rate has a decreasing impact on economic growth. The study recommends inflation targeting as best monetary policy. There is the need for government to increase expenditure in the area of infrastructure development and human capital to increase output.

Inflation, and its deleterious effects on economies, has for long been the worry of governments especially among developing countries including Ghana. Several studies on the Ghanaian economy, have concluded that inflation in Ghana is purely a monetary phenomenon though in reality, the causes of inflation are numerous and vary. The main objective of this paper was to identify the key determinants of inflation in Ghana using the most recent monthly data from January 2000 to December 2014 (data period of 180 months). The study tested whether or not Crude Oil Price at the World Market, Exchange Rate, and Electioneering Spillover Quaternary Effects (ESQE) statistically affect inflation in Ghana either individually or jointly. The study found that crude oil price at the world market, exchange rate, and ESQE are key determinants of inflation in Ghana. The findings indicate a positive relationship between Crude Oil Price at the world market and Inflation, Cedi-Dollar Exchange Rate and Inflation as well as ESQE and Inflation (in the case ESQE, the study considered the first quarter of each post-election year within the data period). Each of the determinants: Crude Oil Price, Exchange Rate and ESQE was statistically significant at 1%. The study also indicated a high R-squared of more than 95% for the joint impact of all three determinants on inflation. This means that jointly, Crude Oil Price, Exchange Rate, and ESQE explain more than 95% of the variation in inflation in Ghana. The paper recommends further study into this subject matter by considering many other potential determinants of inflation in Ghana and the developing world as a whole.

World Journal of Advanced Research and Reviews

Background: One of the fundamental goals of macroeconomic policy in many nations, both developed and developing, is to foster economic development while keeping inflation low. There has been a debate as to whether inflation impacts negatively on economic growth or rather promotes economic growth. The study is motivated by this controversy and used time-series data from 1995 to 2019 in Ghana to examine the relationship between inflation and economic growth, establish the long-run effect and also test whether there exists a causal effect between inflation and economic growth. Method: The review utilized Ordinary Least Square (OLS) regression examination to inspect the impact of inflation on economic growth and while long run co-integration relationship was additionally decide utilizing Fully Modified (FM-OLS) regression analysis. Granger causality was investigated to see if there is a causal impact among inflation and economic growth. Model diagnoses were performed to discover the str...

Journal of Statistical and Econometric Methods, 2014

The interaction among some macroeconomic variables such as Treasury bills, inflation, and exchange rates, affects investment in other securities as well as the economic growth of a country. Identifying the nature of any existing relationships among these macroeconomic variables over time in a country play a central role in its securities pricing as well as in maintaining economic growth. This research used the Johansen's multivariate co-integration test to investigate the existence of co-integration; that is long-run equilibrium relationships among some macroeconomic variables; the 91-day T-bills rate, the 182-day T-bills rate, the inflation rate and the exchange rate in Ghana. The findings of this study revealed that, the four set of rates; the 91-day T-bill, the 182-day T-bill, the inflation rate and the exchange rates are co-integrated, thus showing the existence of long run equilibrium relationship between them. This indicates that, the rates move together over time and do not drift too far from each other. The study also revealed that, there are two linearly independent co-integrating equations describing the long run equilibrium relationship among the four set of rates. An implication of these two co-integrating equations is that, two non-stationary common stochastic trends underlie the time behavior of each rate.

International Journal of Novel Research in Humanity and Social Sciences, 2019

the main goal of this study is to re-investigate the relationship between inflation, economic growth, financial development and remittance in Burkina Faso employing the cointegration, vector Error-Correction Model (VECM) and Granger causality frameworks. This study covers the sample period from 1975 to 2017 and examined the presence of a short run and long-run equilibrium relationship using the Johnsen cointegration approach and vector Error-Correction Model (VECM). additionally, we examine the direction of causality between inflation, economic growth, financial development and remittance in Burkina Faso using the Granger causality test. As a summary of the empirical findings, we find that inflation, economic growth, financial development and remittance in Burkina Faso are cointegrated and there is positive long run relationship between inflation and economic growth whereas financial development and remittance have long run negative relations with inflation and its statistically significant at 5% significance level. Furthermore, the results of granger causality indicate that there is no causality between all the variables that implies there is no short run relationship between inflation, economic growth, financial development and remittance in the context of Burkina Faso.

In this study, the roles of external and internal factors in explaining inflation are established. Contrary to previous attempts, more robust technique is adopted which corrects for both serial correlation in errors and endogeneity in regressors. Based on the general to specific modelling search technique consistent estimates are derived. The statistical importance of the money supply, interest rate, foreign price and crude oil price is established in the long run. In the baseline regression, the theoretical expectation of output growth and the statistical significance of policy regime change is not established. However, after correcting for the endogeneity problem, the theoretical expectations of output growth and the statistical significance of policy regime change are established. The result further showed variability in the degree of inflationary pressures created by internal and external factors. JEL Classification: E00, E3, E31 Keywords: Inflation dynamics; policy regime change; Ghana; FMOLS