Fiscal Policy and Lending Rate Nexus in Ghana

Asamoah, Lawrence Adu (2016): Fiscal Policy and Lending Rate Nexus in Ghana.

Abstract

This paper examines the macroeconomic effects of fiscal policy on retail interest rate in Ghana using the Autoregressive Distributed Lags model. A database of annual data on fiscal variables and lending rates for the period 1970 – 2013 are constructed largely from the World Bank Indicators and International Financial Statistics. Our findings show evidence of contemporaneous effects from fiscal spending to interest rate. Specifically, we show that fiscal deficit induces a sizable and robust effect on the retail interest rate in the short run, but contrary in the long run. We also find that government investment, exchange rate and the yields on government short-term treasury instruments have simultaneous effects on the downward stickiness of the retail interest rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ghana; Fiscal policy; ARDL; Cointegration; Interest rate; Exchange rate
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

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