A Monetary Analysis of Ghana: Examining the Impact and the Causal Relationship between Monetary Policy and Inflation in Ghana

Abstract

Purpose: The main objective of the study was to examine the impact and the causal relationship between monetary policy and inflation in Ghana. Methodology: Annual time series data spanning from 1985 to 2017 with Auto Regressive Distributed Lagged (ARDL) model were employed for the analysis. Findings: The outcome from the study shows that, monetary policy rate had insignificant negative relationship with inflation in both the short and the long run. Again, interest rate, domestic investment and money supply were found to have significant positive impact on inflation in both the long and the short run for a specific period chosen for the study. The causal relationship shows that monetary policy rate granger causes money supply within the period understudy Unique contribution to theory and practice: The study recommends that policy makers need to keenly consider the levels of money supply in Ghana so as to ensure a stable retail price levels. The Government of Ghana needs to evaluate the prevailing levels of retail prices and set the interest rates on the 91-day Treasury bills because they are majorly treated as risk free rate hence determines other interest rates and inflation levels in Ghana.