The transition probabilities for inflation episodes in Ghana
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 29 November 2018
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.
Keywords
Acknowledgements
This paper benefited from the comments from three anonymous reviewers and the editor. The usual disclaimer applies.
Citation
Adom, P.K., Agradi, M.P. and Quaidoo, C. (2018), "The transition probabilities for inflation episodes in Ghana", International Journal of Emerging Markets, Vol. 13 No. 6, pp. 2028-2046. https://doi.org/10.1108/IJoEM-08-2017-0313
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited