Staff Working Papers
In 2002, when the Monetary Policy Committee (MPC) process got underway with a need to incorporate forecasting into the work of the Committee to inform future evolution of macroeconomic outcomes and guide the decision-making process under the forward-looking inflation targeting-lite regime. Starting with a simple Auto-Regressive (AR) model and Vector Error Correction Model (VECM), the forecasting process evolved to a small policy-focused structural Econometric Model (E-MOD) in 2005. Subsequent to that the E-MOD became the focal model, which provided a basis for policy discussions at the MPC meetings during the early stages of the inflation targeting (IT) regime. This version of the model used in 2005 has undergone various modifications and iterations and customized for the Ghana specific situation. This document provides detailed information on the structure of the macroeconomic model used by the Bank of Ghana in forecasting macroeconomic indicators and in arriving at decisions. The model captures the main sectors and transmission channels of the economy and captures all macroeconomic relationships. It is important to note that the macroeconomic relationships are not stand-alone. The macroeconomic indicators impact each other like in a network with multiple connections and effects, all occurring simultaneously. A system, like the model provided, brings together all these relations coherently addresses issues regarding what the central banks need to do to bring inflation back to target. In addition to helping provide a basis for policy discussions, the publication of the model goes a long way in satisfying an important element of the transparency and communication aspect of the Banks Inflation Targeting framework of monetary policy. Within the inflation targeting framework, policy actions can be predictable only if the Central Bank reveals its analytical framework, sources of information and method of aggregating this information. Market participants should be able to come up with roughly the same inflation forecast as the central bank using the given model and given the same data set.
This paper examines the sensitivity of the Ghanaian economy to external demand, supply and financial conditions using a Bayesian Vector Autoregression (BVAR) model. The results of the analysis show that external factors play an important role in the Ghanaian economy and that domestic fundamentals may either act to amplify or dampen the impact of these external developments on the Ghanaian economy.
This paper reviews issues associated with the choice of the current policy framework in Ghana, in particular, focusing on the factors associated with the choice and also the practical aspects of implementation as well as its effects on the performance of inflation and output and on the trade-off between inflation and output variability
This study examines the sustainability of fiscal policy in Ghana by exploring government’s reaction to rising public debt accumulation via the estimation of a fiscal reaction function. Findings suggest that government’s fiscal behaviour is consistent with the intertemporal budget constraint, but the fiscal adjustment appears to be very low. In particular, evidence of significant fiscal pressures in recent years persists, largely driven by fiscal excesses during election cycles.
In this paper, we estimate the pass-through impact of exchange rate movements on domestic prices between January 1994 and December 2012, using a recursive VAR. The model consists of six variables, which are ordered as: oil prices, output gap, exchange rate, non-food prices, overall consumer prices, and money market interest rates with the implicit assumption that the identified shocks contemporaneously impact variables ordered after the shock without a contemporaneous feedback.
Fiscal policy involves the use of government expenditure and taxation to influence the level and direction of economic activity in an economy. In periods of economic slowdown, fiscal authorities can prop up growth in economic activity by either increasing government spending or lowering taxes or do both whereas in times of overheated economy, government expenditure is lowered or taxes increased or both.
Foreign Direct Investment (FDI) constitutes a major source of financing and provides the much needed capital to expand economic opportunities in many developing countries. FDI inflows constitute a stable source of current account financing and enhances the growth potential of developing countries through the multiplier effects of technology transfer and increased competition
In sub-Saharan Africa, private capital flows constitutes a major source of capital to meet financing requirements aimed at economic expansion.