Effects of Inflation Targeting Policy on Inflation Rates and Gross Domestic Product in Ghana

Abstract

Inflation targeting has been widely adopted in both developed and developing economies. The Bank of Ghana (BOG) formally adopted an inflation targeting regime as a major monetary policy framework in May 2007, becoming the second African country to do so after South Africa. This research paper sought to investigate the effect of inflation targeting policy on inflation rates and gross domestic product. The research adopted the quantitative method by comparing the effect of inflation targeting policy on inflation rates and gross domestic product in the pre inflation targeting period (2000-2006) and the post inflation targeting period (2007-2013). The resultsrevealed that there was a significant difference between the mean inflation rates for the two periods. The inflation rate for the post inflation targeting period is significantly less than the pre-inflation targeting period. It was also revealed that inflation targeting did not have a statistically significant effect on economic growth in Ghana. The study concluded that policy makers are encouraged to explore other policy alternative including inflation targeting regime to maximize production in the economy.

Keywords: Inflation Targeting Policy, Inflation Rates, Gross Domestic Product