Single-Digit Inflation Targeting and Economic Growth

Abstract

In recent times, most central banks have adopted inflation-targeting monetary policy approach aimed primarily to achieve single-digit inflation. Though, the literature suggest that low level of inflation promotes economic growth, the literature is silent on the threshold inflation level needed to promote growth. Studies in developing countries that seek to estimate the threshold level of inflation that promotes economic growth do not support single-digit inflation level. The question that arises is whether single-digit inflation support economic growth. The study thus investigate whether single-digit inflation has any positive effect on economic growth and whether inflation-targeting policy promotes economic growth. The study used annual time series data spanning from 1965 to 2011 for Ghana. Using autoregressive distributed lag model technique, the study found that single-digit inflation has no significant effect on economic growth both in the short and long run. However, the findings of the study supports inflation targeting policy as growth enhancing tool in both short and long run.

Economic Growth Implications of Inflation Targeting and Inflation Volatility: An Emerging Economy’s Perspective

“…The findings in the short run means that inflation targeting does not play any instrumental role in promoting economic growth in the short run. The findings in the short run of the study are contrary to that of Ayisi [40] who found a positive significant relationship between inflation targeting and gross domestic product growth in the short run in Ghana. The extent of the contradiction in results could be as a result of the span of the data.…”

“…This will promote general consumption of goods and services or improvement in savings and investment which are key factors in economic growth. The findings of study are consistent with Ayisi [40] who found a positive significant relationship between inflation targeting and gross domestic product growth in Ghana. The extent of the consistency in results could be as a result of the adoption of the same estimation technique.…”

“…The extent of the contradiction in results could be as a result of the span of the data. Ayisi [40] considered the period 1965 to 2011, while the current study is from 1985 to 2014. Observing the trend of GDPPCg over the two periods, it can be seen that growth rate in the 1960s were very low, picked up in the 2000s and a downward trend was seen after 2011.…”

Inflation Growth Nexus in Waemu: A Dynamic Panel Threshold Analysis

“…The explanatory variables used as growth determinants in this research has also been used in some influential empirical works investigating the relationship between inflation and growth (Sarel, 1996;Khan and Senhadji, 2001;and Kremer, Bick and Nautz, 2009) as well as in recent works on developing economies (Risso and Carrera, 2009;Frimpong and Oten-Abayie, 2010;Seleteng, Bittencourt and van Eyden, 2011;Ghazouani, 2012;Ayisi, 2013;Ahortor, Adenekan and Ohemeng, 2012).…”