Ghanaian Inflation and Income Dynamics: Evidence on Volatility and Neutrality

Houssam Boughabi

MPRA Paper from University Library of Munich, Germany

Abstract: The paper explains how inflation, monetary policy, and fiscal interventions interacted in Ghana from 2005 to 2014. A discrete-time macroeconomic model with money supply, taxation, household consumption, GDP per capita, and price adjustments as variables has been developed. The paper uses FIGARCH and GARCH models to investigate the volatility of inflation to decide if it has long-memory properties. The empirical findings show that the fractional differencing parameter $d = 0$ (Hurst exponent $H = 0.5$), which means that there is no persistent long-range dependence in inflation volatility. Hence, a standard GARCH(1,1) model is sufficient to describe short-term volatility dynamics, and shocks to conditional variance occur immediately but subside rapidly. Besides that, the research determines a monetary-fiscal neutrality threshold, which highlights the equilibrium where income growth balances the inflationary pressures; this threshold is assessed macroeconomically into general prices and compared to actual general prices to evaluate its validity. The results indicate that inflation in Ghana during this period is mainly of short-memory nature, thus reaffirming the role of short-term monetary and fiscal operations in price stabilization, and confirming the successful validation of the macroeconomic neutrality threshold linking income growth and price stability.

Keywords: Inflation volatility; statistical modelling; monetary transmission; threshold modeling; Ghanaian economy (search for similar items in EconPapers)
JEL-codes: C32 E31 E37 E44 O55 (search for similar items in EconPapers)
Date: 2025-10-29
New Economics Papers: this item is included in nep-cba, nep-ets and nep-mon
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