Abstract
Ghana is poised to be one of the fastest growing economies in Sub-Saharan Africa because of its emerging oil and gas industry. Ghana’s discovery of oil in commercial quantities in 2007 and its commencement of production in 2010 are expected to have an impact on the economy. To investigate these, we estimated a dynamic stochastic general equilibrium (DSGE) model based on the features of the Ghanaian Economy. We then examined the persistent effects of world oil price and monetary policy shocks (money supply-interest rate induced) on economic growth in Ghana. We realized that, a shock on interest rate leads to a sharp fall in prices which reflects the impact of the decrease in interest rate on the marginal cost. There is a paradoxical effect of a negative interest rate on total money supply. We also showed that a positive output shock has the same effect on consumption, investment, prices and wages as in the case of interest rate shock.
Highlights
The recent uses of dynamic stochastic general equilibrium (DSGE) models have earned a great deal of attention from researchers and policy makers in recent years
We examined the persistent effects of world oil price and monetary policy shocks on economic growth in Ghana
There is a paradoxical effect of a negative interest rate on total money supply
Summary
The recent uses of DSGE models have earned a great deal of attention from researchers and policy makers in recent years. These models treat oil price fluctuations as exogenous supply disturbances that are unrelated to any economic fundamentals. Rotemberg and Woodford (1996) and Finn (2000), assessed the impact of oil supply shocks on the US economy. Leduc and Sill (2004) and Medina and Soto (2005), examined the role of monetary policy as a transmission channel for oil shocks. In an experiment by Jacquinot et al (2009) and Nakov & Pescatori (2010a), they showed that different types of oil shocks engender distinct monetary policy reactions. A number of studies have employed Bayesian estimation techniques to identify
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