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Abstract
The study examined the impact of fiscal and monetary policy actions on the stock market in Ghana. In pursuing this, the researchers probed the inter-temporal interaction between macroeconomic policies and stock market activities in Ghana and investigated the efficiency of the stock market with respect to fiscal and monetary policy information. It was found that, both from common correlation analysis to recent econometric modeling; indicate fiscal policy actions have significant effects on stock market activities and not the other way round. In addition, there is a unidirectional causal effect of fiscal policy actions on stock market activity. It was thus concluded that the fiscal policy actions do matter in the activities of the stock market. The study recommends that government must synchronize its fiscal policy actions with activities in the stock market among others.
Highlights
There is substantial theoretical evidence from the Keynesian paradigm that fiscal or monetary policy actions cannot separately achieve desirable macroeconomic objectives
This is the case as changes in any of the fiscal or monetary policy instruments change market interest rates instantaneously in the framework and forces investors to evaluate their portfolio
The study examined the intertemporal interaction between fiscal policy, monetary policy and stock market activity in Ghana
Summary
There is substantial theoretical evidence from the Keynesian paradigm that fiscal or monetary policy actions cannot separately achieve desirable macroeconomic objectives. While there is irresistible empirical evidence about this Keynesian proposition, the inter-relations between fiscal and monetary policy actions and interest rates from the typical IS-LM framework suggest analysis of stock market activities cannot be completely independent of such policy influences. This is the case as changes in any of the fiscal or monetary policy instruments (like government spending, taxes and money supply) change market interest rates instantaneously in the framework and forces investors to evaluate their portfolio. No study could be found for the case of Ghana, where an attempt is made to analyze stock market activities intertemporally with fiscal and monetary policy actions
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