Abstract

What are the long-term effects of output growth, broad money supply, government bond rates and fiscal deficits on inflation in Ghana? What is the evolution of orthog-
onalized shocks to Ghana’s inflation? How do we account for structural shifts of inflation along the economic and political cycles? Answers to these questions are
critical for development and proper planning to mitigate the risks associated with economic uncertainty, yet previous research has not provided adequate answers to
aid economic planners. This study is a re-examination of the evidence, as well as a discovery of fresh insights about persistent price level increases which have so far
defied policy interventions. Among others, the study found inflation inertia to be the dominant factor, followed by output and broad money growth, attenuated by treasury
bill rate in different regimes. Shocks emanating from output growth appear to have a more lasting impact on inflation while fiscal deficits produce indirect effects. Easing
the supply-side constraints that bedevils the Ghanaian economy, prudent economic and sound financial management is one lever that can tackle the inflation problem.
Another lever is high level of credibility of central bank operations that should ide-ally keep inflation expectations anchored.