Impact of Market-based Policies and External Fiscal Discipline on Ghana's Inflation

Abstract

This study investigates the impact of liberalization of the forex exchange and financial sectors and external prudent fiscal management in Cote d'Ivoire on Ghana's inflation. We find that, in the financial sector, there is a case for liberalization, in terms of lowering inflation. However, a quasi-liberalized system in the sector proves to have a greater potential to reduce inflation in Ghana. In the exchange market, non-liberalization has the edge over liberalization in reducing inflation in Ghana. However, a quasi-liberalized system in the sector has a greater potential to lower inflation. There is evidence of a strong intra-continental transfer of inflation from Cote d'Ivoire to Ghana, but this transmission has been significantly moderated downwards by the implementation of prudent fiscal management in Cote d'Ivoire. We also find that monetary targeting and inflation targeting have deflationary effects, but we cannot claim that this has significantly reduced inflation. The implication of the result is that; a system that achieves the correct balance between the market mechanism and command system in the exchange and financial sectors has a greater potential to lower inflation in Ghana. Also, domestic monetary policies should not only be anchored on internal factors.

Published in

Review of Development Economics
2016, volume: 20, number: 4, pages: 794-816
Publisher: WILEY

SLU Authors

• Adom, Philip Kofi

  • Department of Forest Economics, Swedish University of Agricultural Sciences
    
  • University of Professional Studies, Accra

Global goals (SDG)

SDG10 Reduced inequalities
SDG17 Partnerships for the goals

UKÄ Subject classification

Economics

Publication identifier

• DOI: https://doi.org/10.1111/rode.12228

Permanent link to this page (URI)

https://res.slu.se/id/publ/83149