Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?

Although literature acknowledges the nonlinearity in monetary policy behaviour of central banks, the appropriateness of the models used to capture the nonlinearity remains questionable. Moreover, the paucity of research on nonlinear monetary policy rules in the context of Africa and Ghana in particu...

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Autores principales:	Abdul-Aziz Iddrisu, Imhotep Paul Alagidede
Formato:	article
Lenguaje:	EN
Publicado:	Taylor & Francis Group 2021
Materias:	monetary policy rule threshold inflation targeting sample splitting Finance HG1-9999 Economic theory. Demography HB1-3840
Acceso en línea:	https://doaj.org/article/0bbe26a41a784581b4473a28f9130049
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spelling	oai:doaj.org-article:0bbe26a41a784581b4473a28f91300492021-11-26T11:19:50ZEstimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?2332-203910.1080/23322039.2021.1988201https://doaj.org/article/0bbe26a41a784581b4473a28f91300492021-01-01T00:00:00Zhttp://dx.doi.org/10.1080/23322039.2021.1988201https://doaj.org/toc/2332-2039Although literature acknowledges the nonlinearity in monetary policy behaviour of central banks, the appropriateness of the models used to capture the nonlinearity remains questionable. Moreover, the paucity of research on nonlinear monetary policy rules in the context of Africa and Ghana in particular is worrying, given the numerous breaches of the publicly announced inflation targets. The study estimates the Bank of Ghana’s policy responses over the inflation targeting period using the Taylor rule. We find that the Bank of Ghana reacts asymmetrically to inflation gap below and above the estimated inflation threshold of 16.4% with considerable inflation accommodation instead of targeting it. We question the logic behind the prevailing upper and lower bounds inflation target given the evidence to the contrary. The average inflation over the targeting period, the estimated inflation threshold and the structure of the Ghanaian economy raise questions of feasibility of achieving the inflation target on sustainable basis. Policy implications are discussed.Abdul-Aziz IddrisuImhotep Paul AlagidedeTaylor & Francis Grouparticlemonetary policy rulethresholdinflation targetingsample splittingFinanceHG1-9999Economic theory. DemographyHB1-3840ENCogent Economics & Finance, Vol 9, Iss 1 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	monetary policy rule threshold inflation targeting sample splitting Finance HG1-9999 Economic theory. Demography HB1-3840
spellingShingle	monetary policy rule threshold inflation targeting sample splitting Finance HG1-9999 Economic theory. Demography HB1-3840 Abdul-Aziz Iddrisu Imhotep Paul Alagidede Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
description	Although literature acknowledges the nonlinearity in monetary policy behaviour of central banks, the appropriateness of the models used to capture the nonlinearity remains questionable. Moreover, the paucity of research on nonlinear monetary policy rules in the context of Africa and Ghana in particular is worrying, given the numerous breaches of the publicly announced inflation targets. The study estimates the Bank of Ghana’s policy responses over the inflation targeting period using the Taylor rule. We find that the Bank of Ghana reacts asymmetrically to inflation gap below and above the estimated inflation threshold of 16.4% with considerable inflation accommodation instead of targeting it. We question the logic behind the prevailing upper and lower bounds inflation target given the evidence to the contrary. The average inflation over the targeting period, the estimated inflation threshold and the structure of the Ghanaian economy raise questions of feasibility of achieving the inflation target on sustainable basis. Policy implications are discussed.
format	article
author	Abdul-Aziz Iddrisu Imhotep Paul Alagidede
author_facet	Abdul-Aziz Iddrisu Imhotep Paul Alagidede
author_sort	Abdul-Aziz Iddrisu
title	Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
title_short	Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
title_full	Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
title_fullStr	Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
title_full_unstemmed	Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?
title_sort	estimating bank of ghana’s policy responses in the context of taylor rule: is the inflation target realistic?
publisher	Taylor & Francis Group
publishDate	2021
url	https://doaj.org/article/0bbe26a41a784581b4473a28f9130049
work_keys_str_mv	AT abdulaziziddrisu estimatingbankofghanaspolicyresponsesinthecontextoftaylorruleistheinflationtargetrealistic AT imhoteppaulalagidede estimatingbankofghanaspolicyresponsesinthecontextoftaylorruleistheinflationtargetrealistic
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Estimating bank of Ghana’s policy responses in the context of Taylor rule: Is the inflation target realistic?

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