Quarterly Projection Model for the Bank of Ghana: Extensions and Applications

IMF Working Papers, November 15, 2024

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Canonical URL: Quarterly Projection Model for the Bank of Ghana: Extensions and Applications

Authors: Philip Abradu-Otoo, Joseph K. Acquah, James Attuquaye, Simon Harvey, Francis Loloh, Shalva Mkhatrishvili, Valeriu Nalban, Daniel Ngoh, Victor Osei, Michael Quansah
Published: November 15, 2024
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798400292156.001

Documents the latest extensions of the Bank of Ghana’s Quarterly Projection Model (QPM), used regularly to produce policy analysis and forecasts in support of the Bank’s policy processes.
Decomposition of GDP separates agriculture and oil sectors (driven by exogenous and international developments) from non-agriculture non-oil activities (more relevant for the central bank’s assessment of the business cycle position).
Inter-sectoral price spillovers and their role in the formation of inflation expectations are explicitly accounted for, with important policy implications.

GDP decomposition that isolates:
- Agriculture sector (exogenous and international drivers).
- Oil sector (exogenous and international drivers).
- Non-agriculture non-oil activities (central bank relevance for business cycle assessment).
Explicit modeling of inter-sectoral price spillovers and their impact on inflation expectations.
Inclusion of mechanisms to capture transmission relevant to inflation targeting and monetary policy decisions.

Impulse response functions:
- Used to trace dynamic responses of the model to shocks across sectors.
Shock simulations:
- Simulations of shocks that affect agricultural production, e.g., those caused by climate disruptions.
Counterfactual simulations:
- Evaluations of recent policy choices through counterfactual scenarios to assess alternative policy paths.

The extended QPM:
- Provides a more detailed account of economic developments.
- Enhances forecast coverage.
- Broadens the underlying narrative informing policy.
- Strengthens the Bank of Ghana’s forward-looking policy framework.

Accounting for inter-sectoral price spillovers and expectations formation has important policy implications for:
- Inflation targeting frameworks.
- Monetary policy reaction functions.
- Assessment of the output gap and real interest rate dynamics.
The model supports policy analysis and forecasting that better distinguishes internationally driven sectoral shocks (agriculture, oil) from domestically driven business cycle developments.