The transition probabilities for inflation episodes in Ghana

Abstract

Purpose Following the reforms in monetary policy and shift in fiscal policies, it is logical to presume that these reforms may cause a significant structural change in the dynamic processes of inflation and hence affect the nature of inflation persistence. The purpose of this paper is to examine the persistence nature of the different inflation episodes while controlling for the effects of demand- and supply-side factors, which are modeled as regime-dependent. Design/methodology/approach This paper used the Markov-switching dynamic regression and annual time series data. Findings The results showed that high inflation regime is more persistent than low inflation regime, with a respective average duration of an escape of 3.5 and 2.57 years, which suggests that price stability achievements are less sustainable. In both regimes, demand- and supply-side factors play significant roles in driving inflation, but the effect of the latter dominates. Thus, on the argument of whether inflation in Ghana is structural or monetary, the results support the former. The roles of both structural and monetary factors have changed over time, but that of the former has been more significant and important in Ghana. Originality/value This study provides the first empirical attempt, in the case of Ghana, that examines the persistence nature of different inflation regimes, while modeling the effects of supply and demand factors as regime dependent. In the modeling sense, the authors also contribute by ruling out the assumption that the researcher knows the processes responsible for each observation at each point in time.

Inflation forecasting in an emerging economy: selecting variables with machine learning algorithms

“…They confirmed that the Bayesian VAR models perform better than the DSGE models to forecast inflation in Sweden. In the case of low and high inflation regimes, Adom et al (2018) monitor supply and demand factors to keep pace with continuing inflation in Ghana. Their Markow-switching dynamic regression model suggests that both factors are meaningful for inflationary inertia and that the high inflation regime is more persistent than the low inflation regime.…”

An assessment of the Determinants of Inflation in Nepal: A study between 1974/75 and 2021/22

“…Additionally, inflation can lead to the failure of important policies or projects because it disrupts budget allocation, ultimately hindering the economic progress. Considering the adverse consequences of inflation is likely to have on economies as well as the livelihood and welfare of citizens, the dynamics of inflation, money supply and budget deficit have continuously received attention from both theoretically and empirical perspectives (Adom et al, 2018). Different scholars employ different methods to describe the phenomenon of inflation.…”