Inflation Targeting: The Ghanaian Experience

Abstract

Inflation Targeting as a monetary policy has been adopted widely by many countries both developed and developing. The Bank of Ghana, adopted Inflation Targeting in 2002 but made an official announcement of its use in 2007, making Ghana the second country to adopt Inflation Targeting in Africa after South Africa. This study sought to determine the effects of Inflation Targeting on the Inflation Rate, Economic Growth, the Exchange Rate and the growth in Money Supply of Ghana. The study adopted the quantitative method in the analysis of the data. Secondary data was used in this work. The study compared the effects of Inflation Targeting on the given macroeconomic variables by dividing the thirty year period (1984-2013) into an eighteen year pre inflation targeting period (1984-2001) and a twelve year post inflation targeting period (2002-2013). The results showed a difference in the various macroeconomic variables between the pre and the post inflation targeting eras. The results, also showed a significant decline in the rate of inflation in Ghana after the adoption of Inflation Targeting. There was also a significant improvement in the level of economic growth after the implementation of Inflation Targeting. The exchange rate situation of Ghana has however worsened since the implementation of Inflation Targeting, though this is not statistically significant. There was also a fall in the growth of money supply in Ghana though this was also not statistically significant. The study concluded that Inflation Targeting should be continued and not truncated since it has shown a fall in the rate of inflation. Higher goals also need to be set to attain higher performances in the country’s macroeconomic variables as other countries are doing. More studies also need to be conducted in this area with other macroeconomic variables.