Policy Consistency and Inflation in Ghana

"This paper examines why the rates of inflation in Ghana have usually stayed above target levels. A trivial answer is that the targets were too optimistic and outside the achievable ranges. The paper assumes that the targets were reasonable and examines other possible reasons why they were not met. One answer provided by the Sowa and Kwakye (1991) study is that inflation is much more influenced by real factors (particularly food production), which have so far not been addressed by policy. It can be argued that policy effects on the real sector are of a long-run nature and may not be expected to have short-run effects on inflation. A weakness of the Sowa and Kwakye (1991) study was its inability to capture the short-run dynamics of the inflationary spiral. This study addresses this issue by employing an error-correction model to examine inflation in Ghana."