Investigations into Ghana’s Macroeconomics Relationship between Inflation and Unemployment. Quantitative Analysis Based on Time Series in the Years 1990-2014.

Abstract

Indicators of a country's economic well-being include the unemployment rate and inflation rates. The empirical relationship between inflation and unemployment in Ghana's economy is explained and analyzed in this paper. It appears that the most hotly debated statistics in Ghana are the rate of inflation and the rate of unemployment, yet there is lack of knowledge about the connection between unemployment and inflation, it is imperative that we gain this understanding. In addition, the tax rate, compensation for employees, participation in the labor force, and enrolment in tertiary education are all indicators of unemployment. A quantitative framework is used to explain the empirical relationship between inflation and unemployment in Ghana and determine the sensitivity of unemployment to changing inflation levels using co-integration regression, causality, correlation, and sensitivity analyses. The Augmented Dickey-Fuller test of stationarity was adopted, after which the Granger causality method was used to determine causation between inflation and unemployment The study relied on World Bank data from 1990 to 2014 and found a strong correlation between unemployment and inflation in the Ghanaian economy which is also consistent with Haug and King (2011), whereas Onwioduokit (2006) found a negative correlation. The model's variables are stationary, and the findings of the causality test point to a link between Ghana's high unemployment rate and its high inflation rate. The unemployment will rise by 3.2795 percent if inflation rises by 1 percent. I therefore recommend that the Ghanaian economy maintain a low and stable inflation rate in order to reduce unemployment, equivocally, thanks to the findings of this research. There is evidence to suggest that inflation has a long-term positive impact on and is a direct cause of unemployment in Ghana, so policymakers and the government should put more effort into keeping inflation low in order to address this problem. Since inflation levels can be used to measure unemployment levels to some extent and the R-squared is significantly low in the regression result, the measurement of inflation should be done more accurately to avoid errors. Ghana's Statistical Service must devote more resources to ensuring that the CPI basket includes only relevant items and should be given the appropriate weights. Real-world impact should be reported in relation to other indicators or factors to make it more comprehensible. For example, an increase in unemployment of z percentage points could be explained by an increase in the price of an item purchased on the market rising by y percentage points. Finally, the researcher recommends that other economic indicators, such as employee compensation, tax rate, labor force participation rate, and tertiary school enrollment, be taken into consideration as potential indicators of unemployment in African economies.