The Threshold Effect in the Relationship Between Inflation and Economic Growth in Ghana

Abstract

Sustainable growth of the economy and ensuring a stable price market are two major macroeconomic policy objectives of Ghana’s economy, although policy makers find it tough in meeting these targets simultaneously. This is because high rate of inflation has adverse effect on economic growth, despite the fact that, a steady fall of the general price level for a continuous time period may be detrimental to the economy. Thus, the study sought to investigate the threshold effects of inflation on economic growth in Ghana. Annual time series data from 1980-2019 was used. The study found 10.70% as the inflation threshold value for Ghana. The results show that, anytime inflation is less than 10.70%, its negative effect on the economy is much less than when it increases beyond the threshold value of 10.70%. At the end, suggestions based on these findings are proffered to the relevant agencies, organizations, institutions, and stakeholders for necessary action.