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GDP Growth, Money Growth, Exchange Rate and Inflation in Ghana

Journal: Journal of Contemporary Issues in Business Research (Vol.3, No. 2)

Publication Date:

Authors : ; ;

Page : 75-87

Keywords : Inflation; Error correction model; Money supply; Ghana.;

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This paper analyses the implications of exchange rate, GDP growth and monetary policies for inflation in Ghana. Although domestic money supply has significant influence on the behavior of the inflation rate in the long run, the short run dynamics based on an error correction model indicate that money supply has little impact on the domestic price level. This paper is unable to prove a significant long-run relationship between exchange rate and inflation in Ghana. The results confirm a long-run equilibrium relationship between inflation, money supply, foreign price and the real income. In line with theoretical assumptions, the findings demonstrate that in the long run, inflation in Ghana is positively related to the money supply while it is negatively related to real income and foreign price level. The results of the paper give enormous support to the current policy by the Bank of Ghana of anchoring inflation targeting on monetary policy.

Last modified: 2015-01-16 06:16:06