Does Money Matter for Inflation in Ghana?
IMF Working Papers, November 1, 2011
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- Does Money Matter for Inflation in Ghana?
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Bibliographic details
- Authors: Arto Kovanen
- Published: November 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463925291.001
Summary
- Money has only limited information value for future inflation in Ghana over a typical monetary policy implementation horizon (four to eight quarters).
- Currency depreciation and demand pressures (as measured by the output gap) are important predictors of future price changes.
- Inflation inertia is high and inflation expectations are largely based on backward-looking information.
- Inflation expectations are not well anchored, suggesting more is needed to strengthen the credibility of Ghana's inflation-targeting regime.
Key findings and evidence
- Limited predictive power of monetary aggregates for inflation at horizons of four to eight quarters.
- Strong predictive role for:
- Currency depreciation.
- Demand pressures as measured by the output gap.
- High inflation inertia and backward-looking inflation expectations indicate weak anchoring of expectations.
Policy implications and recommendations
- Strengthen the credibility of Ghana's inflation-targeting regime to better anchor inflation expectations.
- Given the predictive importance of currency depreciation and the output gap, monetary policy frameworks should:
- Monitor exchange rate developments closely.
- Pay attention to demand conditions captured by the output gap when forecasting inflation and setting policy.
Content in this bundle
- Does Money Matter for Inflation in Ghana? — Section 1–3