Inflation, Inflation Uncertainty, and Growth: Evidence from Ghana

Njindan Iyke, Bernard and Ho, Sin-Yu (2018): Inflation, Inflation Uncertainty, and Growth: Evidence from Ghana. Forthcoming in: Contemporary Economics

Abstract

Inflation and inflation uncertainty are critical factors influencing the functioning of markets, and thus the efficient flow of economic activities. In this study, we investigated the effects of inflation and inflation uncertainty on growth in Ghana. Unlike majority of the previous studies, we distinguished the short-run effects of inflation and inflation uncertainty on growth from the long-run effects. Also, unlike the previous studies, we examined whether increases in inflation uncertainty have the same effects on growth as decreases in it. By taking linear and nonlinear specifications to a dataset covering the period 1963 to 2015, we found that inflation has both short and long-run negative effects on growth. Inflation uncertainty has differential short-run effect and a negative long-run effect on growth. Increases in inflation uncertainty hurt growth, while decreases may reverse this pattern but slowly. Both inflation and inflation uncertainty are critical determinants of growth in the country. To promote growth, policymakers should continue to pursue a lower inflation target, while ensuring minimum inflation uncertainty.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation; Inflation Uncertainty; Growth; Ghana
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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