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Effect of Monetary Policy on Economic Growth in Ghana

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  • Abille, Adamu Braimah
  • Mpuure, Desmond Mbe-Nyire

Abstract

This paper seeks to examine the role of monetary policy as an instrument for growth in the Ghanaian economy. The study was conducted based on yearly data from 1983 to 2017. Economic growth was the regressand in the study, with money supply, inflation, and the lending rate as the regressors. The ARDL bounds test technique was employed to investigate cointegration among the variables. The results confirmed the presence of cointegration among the variables. The results also showed the money supply as having a significant positive effect on growth in Ghana in the long run but a significant negative effect on growth in the short run. The lending rate however, was found to have an insignificant negative effect on growth in the long run but a significant positive effect on growth in the short run. Therefore, on the basis of the research findings, it is recommended that money supply be regulated in such a way that it does not lead to uncontrollable inflation, as inflation has a significant negative impact on economic growth at least in the short run, while persistent inflation in the long run is inimical to economic growth. It is further recommended that the lending rate be managed properly in order for investment to be accelerated to boost economic growth.

Suggested Citation

  • Abille, Adamu Braimah & Mpuure, Desmond Mbe-Nyire, 2020. "Effect of Monetary Policy on Economic Growth in Ghana," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(2).
    • Handle: RePEc:ags:thkase:334400
    DOI: 10.22004/ag.econ.334400
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    References listed on IDEAS

    as
    1. Milton Friedman, 1971. "A Theoretical Framework for Monetary Analysis," NBER Books, National Bureau of Economic Research, Inc, number frie71-1, June.
    2. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    3. UFOEZE, Lawrence Olisaemeka, 2018. "Effect Of Monetary Policy On Economic Growth In Nigeria: An Empirical Investigation," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 9(1), pages 123-140.
    4. Christian Merkl, 2008. "Galí J: Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework," Journal of Economics, Springer, vol. 95(2), pages 179-181, November.
    5. Enock Nyorekwa Twinoburyo & Nicholas M. Odhiambo, 2018. "Monetary Policy and Economic Growth: A Review of International Literature," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 7(2), pages 123-137.
    6. srithilat, khaysy & Sun, Gang, 2017. "The Impact of Monetary Policy on Economic Development: Evidence from Lao PDR," MPRA Paper 79369, University Library of Munich, Germany, revised 27 Apr 2017.
    7. Mr. Arto Kovanen & Jihad Dagher, 2011. "On the Stability of Money Demand in Ghana: A Bounds Testing Approach," IMF Working Papers 2011/273, International Monetary Fund.
    8. Milton Friedman, 1971. "The Keynesian Challenge to the Quantity Theory," NBER Chapters, in: A Theoretical Framework for Monetary Analysis, pages 15-29, National Bureau of Economic Research, Inc.
    9. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    10. Rami Obeid & Bassam Awad, 2017. "Effectiveness of Monetary Policy Instruments on Economic Growth in Jordan Using Vector Error Correction Model," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(11), pages 194-206, November.
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    Cited by:

    1. Bosede Olanike Awoyemi & Mark Achukwu & Simon Asala & Oluwole Aiyegbusi & Tajudeen Abiodun Onikate-Amosu, 2024. "Building Resilience for Transformational Recovery: An Analysis of Monetary Policy and Economic Growth in West Africa before and Following the COVID-19 Periods," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 111-122, July.

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