The effect of inflation on economic growth in Ghana, 1995-2019: Post democratic analysis

Abstract

Background: One of the fundamental goals of macroeconomic policy in many nations, both developed and developing, is to foster economic development while keeping inflation low. There has been a debate as to whether inflation impacts negatively on economic growth or rather promotes economic growth. The study is motivated by this controversy and used time-series data from 1995 to 2019 in Ghana to examine the relationship between inflation and economic growth, establish the long-run effect and also test whether there exists a causal effect between inflation and economic growth. Method: The review utilized Ordinary Least Square (OLS) regression examination to inspect the impact of inflation on economic growth and while long run co-integration relationship was additionally decide utilizing Fully Modified (FM-OLS) regression analysis. Granger causality was investigated to see if there is a causal impact among inflation and economic growth. Model diagnoses were performed to discover the strength of the discoveries where autocorrelation, multicollinearity, normality test and heteroscedasticity were tested. Results: The review uncovered that, inflation has a negative measurably irrelevant impact on economic growth at 5% basic level. The concentrate likewise uncovered that there was co-integration relationship between inflation and economic growth during the time of viable 1995-2019. There was no causal impact among inflation and economic growth, in this way neither inflation nor economic growth Granger-Causes the other. The study suggest that inflation targeting ought to be the best financial approach measure for economic growth by keeping up with the rate at 8+/-2%.