The study evaluates budget deficit sustainability of Ghana between 1960 and 2010 using the present value budget constraint approach. By applying annual time series data, the ADF and PP tests for unit root rejected the null hypothesis at 1 percent significance level after first difference. Hence, both government expenditure and revenue of Ghana are stationary and integrated of order one. The Granger causality test supported a bi-directional causation such that both expenditure and revenue of Ghana have temporal precedence over each other. This means past and present values of government revenue provide important information to forecast future values of expenditure. The test for cointegration favored the sustainability of budget deficit of Ghana at 10 percent significance level in the strong sense. In this case, government can continue to service its past accumulated deficits without large future correction to the balance of income and expenditure. Again, the study achieved the conventional negative sign of the speed of adjustment to long run equilibrium following shocks to the system at 5 percent significance level.
The study examined the impact of fiscal and monetary policy actions on the stock market in Ghana. In pursuing this, the researchers probed the inter-temporal interaction between macroeconomic policies and stock market activities in Ghana and investigated the efficiency of the stock market with respect to fiscal and monetary policy information. It was found that, both from common correlation analysis to recent econometric modeling; indicate fiscal policy actions have significant effects on stock market activities and not the other way round. In addition, there is a unidirectional causal effect of fiscal policy actions on stock market activity. It was thus concluded that the fiscal policy actions do matter in the activities of the stock market. The study recommends that government must synchronize its fiscal policy actions with activities in the stock market among others.
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