Abstract
The main purpose of the study was to empirically investigate the impact of money supply on inflation rate in Ghana using semi-annual series ranging from December 1990 to June 2017. Specifically, the Autoregressive Distributed Lag (ARDL) approach to cointegration was employed to ascertain the long-run and short-run relationship between the series. The findings from the study revealed that, growth in money supply (GMS) has a positive significant impact on inflation rate (INFR) in the long-run. However, no significant association was found between money supply and inflation in the short-run. Political instability during election year that arises from the manipulation of fiscal policy in order for the incumbent government to increase the likelihood of winning the next election was found to have a negative and significant impact on inflation rate in the short run. Keywords : Money Supply, Inflation, government spending, Ghana DOI : 10.7176/RJFA/10-16-17 Publication date : August 31 st 2019
Highlights
In economics, it is generally accepted that high prices of goods and services is sufficiently enough to weaken the purchasing power of scarce capital of central government, firms, households and individuals (Peterson, Farmer, Lasky & Weinstein, 2009)
No significant association was found between money supply and inflation in the short-run
Political instability during election year that arises from the manipulation of fiscal policy in order for the incumbent government to increase the likelihood of winning the election was found to have a negative and significant impact on inflation rate in the short run
Summary
It is generally accepted that high prices of goods and services is sufficiently enough to weaken the purchasing power of scarce capital of central government, firms, households and individuals (Peterson, Farmer, Lasky & Weinstein, 2009). The negative effect of inflation on purchasing power and government policy formulation has made this variable a major focus in economic policy and is mostly seen in the annual budget of most developing countries including Ghana (BOG, 2013; Anwar &Islam, 2011; Adu & Marbuah, 2011). A study by the Institute of Economic Affairs (IEA), on inflation trends in Ghana revealed that, Ghana for a long period has experience high level of inflation They argued that, for a period of thirty years (1979 – 2009), “monetization of fiscal deficit” and “cyclical food deficit” are the main driving force of inflation. This suggest that policy to curb inflation in Ghana has been ineffective. The highest during this range of period was recorded in 1983 with inflation rate as high as 142.4 percent
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