The monetary policy transmission mechanism and inflation control in Ghana

The central bank of Ghana officially adopted an explicit inflating targeting monetary policy in May 2007 following its operational independence in March 2002. This thesis firstly explores the evolution of monetary policy and inflation in Ghana, before characterising the conduct and effectiveness of monetary policy. The thesis uses time series estimations of Taylor-type reactions functions to characterise monetary policy conduct and uses three other approaches to evaluate monetary policy effectiveness. In the first approach the long-run interest rate response to inflation, output gap, and other inflation precursors from estimated reaction functions is compared with Taylor’s reference values. The second method analyses the responsiveness of the policy interest rate to commercial bank retail rates while the third approach investigates the monetary transmission mechanism to the wider economy using variables’ impulse responses to investigate how other important variables that are either the final objective of policy or the conduit through which the final objective of policy is attained, behave in response to monetary policy. The analysis uses a modified cointegration and error correction model that is robust to the stationary properties of the data as well as vector autoregression techniques. The results show monetary policy was largely effective in influencing the savings rate but not quite effective in controlling inflation. An alternative model (McCallum 1995a) that uses monetary aggregates as a policy instrument appears to explain monetary policy in Ghana better. The thesis suggests possible reasons for the non effectiveness of monetary policy and offer policy recommendations for long-term inflation control.

Name dc:type.qualificationname

phd

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

Nottingham Trent University

Year dc:date.issued

2009

Author dc:creator

• Ibn Boamah, M

Language dc:language

en