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Macroeconomic determinants of interest rate spreads in Ghana

Author

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  • Samuel Kwabena Obeng
  • Daniel Sakyi

Abstract

Purpose - The purpose of this paper is to examine macroeconomic determinants of interest rate spreads in Ghana for the period 1980-2013. Design/methodology/approach - The autoregressive distributed lag bounds test approach to cointegration and the error correction model were used for the estimation. Findings - The results indicate that exchange rate volatility, fiscal deficit, economic growth, and public sector borrowing from commercial banks, increase interest rate spreads in Ghana in both the long and short run. Institutional quality reduces interest rate spreads in the long run while lending interest rate volatility and monetary policy rate reduce interest rate spreads in the short run. Research limitations/implications - The depreciation of the Ghana cedi must be controlled since its volatility increases spreads. There is a need for fiscal discipline since fiscal deficits increase interest rate spreads. Government must reduce its domestic borrowing because the associated crowding-out effect increases interest rate spreads. The central bank must improve its monitoring and regulation of the financial sector in order to reduce spreads. Originality/value - The main novelty of the paper (compared to other studies on Ghana) lies on the one hand; analysing macroeconomic determinants of interest rate spreads and, on the other hand, controlling for the impact of institutional quality on interest rate spreads in Ghana.

Suggested Citation

  • Samuel Kwabena Obeng & Daniel Sakyi, 2017. "Macroeconomic determinants of interest rate spreads in Ghana," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 8(1), pages 76-88, March.
    • Handle: RePEc:eme:ajemsp:ajems-12-2015-0143
    DOI: 10.1108/AJEMS-12-2015-0143
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    Cited by:

    1. Abbas Ali Chandio & Waqar Akram & Uzma Bashir & Fayyaz Ahmad & Sultan Adeel & Yuansheng Jiang, 2023. "Sustainable maize production and climatic change in Nepal: robust role of climatic and non-climatic factors in the long-run and short-run," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(2), pages 1614-1644, February.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2022. "Financial Access and Value Added in Sub-Saharan Africa: Empirical Evidence from the Agricultural, Manufacturing and Service Sectors," Working Papers 22/009, European Xtramile Centre of African Studies (EXCAS).

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