Rethinking about Determinants of Inflation in Ghana: Which Econometric Model Tell the True Story

Abstract

This study examines the factors that influence inflation in Ghana over the sample period of 1965-2012, using the Bayesian Model Selection (BMS) techniques to address issues of model uncertainty. Using data from the world development indictors, the study found real output growth, population growth rate, broad money, exchange rate, lending rate and budget deficit as some of the key factors contributing to Ghana’s inflation. The study recommends among others Bank of Ghana to adopt a low official interest rate as it has a transmission mechanism.

JEL Code: E32, E37

Keywords: Bayesian Model Selection, Ghana, Inflation