Macroeconomic Determinants of Inflation In Ghana: A Co integration Approach

Abstract

This paper examined the macroeconomic determinants of inflation in Ghana using a cointegration approach. The main purpose of the paper is to investigate whether population growth, foreign direct investment, foreign aid, agricultural and service’s output have a significance influence on the inflationary situations experienced in Ghana over the study period. The method of analysis was the cointegration analysis. The stationarity properties of all the variables of interest were checked and established. All the variables under consideration were found to be integrated of order one, that is, I (1). Johansen cointegration approach showed that there is both long and short run relationship among the variables; therefore, the vector error correction model was estimated. The study identified population growth, foreign direct investment, foreign aid, and service’s output as major long run determinants of inflation in Ghana