Examining the Factors Underlining the Inflationary Phenomenon in Ghana – A Dynamic ARDL Analysis

Abstract

The phenomenon of inflation is one of the most widely discussed economic issues across the world and for this reason has continued to remain very relevant and visible within the policy domain. This is because it affects the economic fortunes of the principal actors within the economy from the low to the high income. This study adds to the existing literature on inflation by identifying the short and long run factors which influence its trajectory in the Ghanaian economy. The study adopts the Autoregressive Distributed Lag approach to comprehensively establish the long and short run determinants of inflation based on the data set spanning from 1979 to 2016 and the empirical analysis shows that price level is in the long run significantly determined by food crop production, crude oil prices, population, output of goods and services and money supply but in the short run the only variable which does not impact significantly on the price level variable is the interest rate proxied by the policy rate. It is also established that the system is able to correct about 60% of the deviations from its equilibrium position in every quarter. The main recommendation that emanates from the study is that policy makers instead of dealing with inflation mainly from the orthodox monetary perspective must also begin to pay more attention to the supply side issues in the economy.

Determinants of Inflation in Sierra Leone

“…The main recommendation from the study point to the fact that the government of Ethiopia should adopt conservative fiscal and monetary policies, while at the same time enhancing the scope for growth, which have implications for reducing inflationary pressures. Anaman (2019) examined the factors underlying the inflationary phenomenon in Ghana using annual data that spanned from 1979 to 2016. The study seems to have added to the body of existing literature on inflation through the identification of short and long-run factors, which are thought to influence the inflation trajectory in Ghana.…”

“…This study seeks to add to the body of knowledge exploration by specifically paying attention to both supply and demand-side indicators (as already outlined in some of the highlighted literature (notably Jackson et al, 2019 andAnaman, 2019), with varied methodology and an expansion of the study period beyond 2019.…”