Time-Varying Analysis of Monetary Policy Channels of Banking System Risk-taking in Ghana Amidst the COVID-19 Uncertainty

Anthony Adu-Asare Idun, John Kingsley Woode () and Peterson Owusu Junior
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Anthony Adu-Asare Idun: Department of Finance, University of Cape Coast, Ghana
John Kingsley Woode: Department of Finance, University of Cape Coast, Ghana
Peterson Owusu Junior: Department of Finance, University of Cape Coast, Ghana†School of Construction Economics, University of the Witwatersrand, South Africa

Annals of Financial Economics (AFE), 2025, vol. 20, issue 01, 1-53

Abstract: In response to the financial sector cleanup in Ghana and the devastating influence of the global health crisis on major economies and financial sectors, this study examines the impact of the various Ghanaian monetary policy indicators (MPIs) (policy rate, growth in reserve money and money supply, exchange rates, inflations and the growth is private sector credit) on the banking sector stability (BSS) components (equity coverage risk, portfolio risk, and systemic risk). The study used monthly data spanning January 2007 to April 2023. The study used the wavelet coherence analysis (bivariate and multivariate) and the nonlinear causality estimations to achieve its objectives. We identified quantitative easing as the main driver of systemic risk in the Ghanaian banking system using adaptive and asymmetric time and frequency domain bivariate and multiple wavelet and causality models. Quantitative easing (contractionary) outcomes such as the growth in money supply and the growth in reserve money have a strong causal link to banks’ equity and asset portfolio buffers. This result was strong for both the overall sample period, including both the period before and during the global health crisis. Among the quantitative easing measures, the growth in the reserve requirements dominates the risk-taking measures of the banks, highlighting its importance in the promotion of financial soundness in Ghana. Together with findings on the risk-taking channels of macroeconomic (inflation, exchange rate and private sector credit) shocks, the findings in this study provide a comprehensive picture of the causal influence of monetary-based strategy outcomes on the systemic peril and hence the soundness of the banking system.

Keywords: Quantitative easing; banking system stability; bivariate and multiple wavelets; macroeconomic shocks; COVID-19; Ghana (search for similar items in EconPapers)
JEL-codes: E4 E42 E6 G2 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S2010495225500071

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