Macroeconomic Impacts of Fiscal Policy in Ghana: Analysis of an Estimated DSGE Model with Financial Exclusion

This study develops and estimates a standard New-Keynesian DSGE model for the Ghanaian economy, for the analysis of the impacts of government spending, consumption tax, and labor income tax shocks on household consumption and workinghours. It also applies the model to examination of the effects of fiscal policy shocks on key macroeconomic variables in the Ghanaian economy. The model features heterogeneous households of two types, financially excluded and financially included, and considers two labor markets: perfectly and monopolistically competitive labormarkets. We use quarterly time series data from 1985Q1-2017Q4 to estimate the model’s parameters using a Bayesian approach. The results show that a positive government spending shock has an expansionary effect on the consumption of financially excluded households but has a decreased effect on that of fully financially included ones. We find that positive consumption and labor income tax shocks decrease the consumption of financially excluded househo lds more than that of financially included ones. From a policy perspective, government spending is effective for increasing output, employment, and the consumption of financially excluded households, although it reduces that of financially included ones.