An empirical analysis of the money supply process in Ghana: 1983-2006

Sanusi, Aliyu Rafindadi (2010): An empirical analysis of the money supply process in Ghana: 1983-2006. Published in: Abuja Journal of Banking and Finance , Vol. 2, No. 1 (2010): pp. 115-128.

Abstract

This paper examines the major drivers of the asset counterpart of the observed money supply in Ghana since the adoption of the Economic Recovery Programmes in Ghana. Using the traditional money multiplier approach, the relative contributions of fiscal financing and capital inflows to the money supply process were examined. It is found that until the mid nineties, fiscal deficit financing was the major driver of the money supply process. In the later years, however, changes in the Net Foreign Assets of the Bank of Ghana, driven largely by foreign aid and remittances inflows, appear to be the major cause of monetary expansion. Until 2003 when discipline improved, government borrowing was also the major component and source of changes in the net domestic assets of the BoG. This, the paper argues, implies that the use of foreign exchange market intervention could be an effective way of controlling money supply.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money Supply Process, Capital flows, Money Multiplier, Ghana
• Subjects: F - International Economics > F3 - International Finance > F35 - Foreign Aid; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

References

Addison, E. K. (2001) Monetary Management in Ghana, International Conference on Monetary Policy Framework in Africa, Pretoria, South Africa.

CEPA (2001) Ghana Macroeconomic Review, Accra, Centre for Policy Analysis.

CEPA (2003) Ghana Macroeconomic Review, Accra, Centre for Policy Analysis.

CEPA (2004) "Review and Analysis of Budget Statement and Economic Policy 2004", Ghana: Selected Economic Issue (7).

Dordunoo, C. K. & Donkor, A. (1998) “Ghana: Monetary Targeting and Economic Development”. AERC Research Paper 77.

IMF (1994) "Ghana, Senegal, and Uganda Adopt Bold Reforms", IMF Survey November, 11.

IMF (1999) "Ghana: Selected Issues", IMF Staff Country Report (99/3).

Leith, J. C. & Söderling, L. (2000) Ghana: Long Term Growth, Atrophy, and Recovery. Emerging Africa. OECD Development Centre

Sanusi, A. R. (2009). Aid, Reform and Exchange Rate Management in Ghana: 1983-2005 Unpublished PhD Thesis, Lancaster University, Chapter two.

Sowa, N. K. (2004). “Central Banking and Monetary Management and Ghana. In Financial Markets and MonetaryPpolicies in Africa M. Ncube (ed). Nairobi, AERC. FM_04: Ch. 4.

Tsikata, Y. M. (1999) Aid and Reform in Ghana. Aid and Reform in Africa: Country Case Study Papers. World Bank.

Younger, S. D. (1992) Aid and the Dutch Disease: Macroeconomic Management When Every Body Loves You. World Development, 20, 1587-1597.