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1 – 1 of 1Richard Amoatey, Richard K. Ayisi and Eric Osei-Assibey
The purpose of this study is twofold. First, to estimate an optimal inflation rate for Ghana and second, to investigate factors that account for the differences between observed…
Abstract
Purpose
The purpose of this study is twofold. First, to estimate an optimal inflation rate for Ghana and second, to investigate factors that account for the differences between observed and target inflation.
Design/methodology/approach
The paper explored the questions within two econometric frameworks, the Autoregressive Distributed Lag (ARDL) and Threshold Regression Models using data spanning the period 1965–2019.
Findings
The study estimated a range of 5–7% optimal inflation for Ghana. While this confirms the single-digit inflation targeting by the Bank of Ghana, the range is lower than the central bank's band of 6–10%. The combined behaviours of the central bank, banks and external outlook influence inflation target misses.
Practical implications
The study urges the central bank to continue pursuing its single-digit inflation targeting. However, it implies that there is still room for the Bank to further lower the current inflation band to achieve an optimal outcome on growth and welfare. Again, the Bank should commit to increased transparency and accountability to enhance its credibility in attaining the targeted inflation.
Originality/value
The study is one of the first attempts in Africa in Ghana to estimate an optimal inflation target and investigate the underlying factors for deviation from the targets.
Details