Modelling the Link between Inflation and Import in Ghana

Alex Ofori, Adjei Mensah Kwame Richardson and Samuel Yeboah

Journal of Empirical Economics, 2015, vol. 4, issue 1, 49-62

Abstract: The paper focus on the link between inflation and import using Autoregressive Distributed Lag model (ARDL) cointegration method to contribute to the body of knowledge that exist in macroeconomic theory on causes of inflation in open but small economy for the period 1960-2012. The unit root test based on Augmented Dickey-Fuller (ADF) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) indicate the series are unit root in levels but attain stationarity on first difference. The descriptive statistic results indicate that inflation is more volatile than import and government expenditure. The cointegration results indicate significant cointegration link between inflation, import and government expenditure. The estimation of the long run model indicates that import is negatively related to inflation though insignificant whereas government expenditure is positively related to inflation but insignificant. There is significant negative short run link between inflation and import whereas government expenditure is significantly related to inflation positively. The findings indicate that import is not inflationary during the period under discussion and as such import restriction policy measures are not recommended for the study area. Future study should examine the same issue using other model such as Johansen model; Gregory-Hansen model and Granger causality model.

Keywords: Inflation; Import; Long run relation; cointegration (search for similar items in EconPapers)
Date: 2015
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