Trade Openness and Monetary Policy in Ghana

ABSTRACT

The study employed a Structural VAR model, using monthly time series data from 2002 to 2017 to assess the relationship between trade openness and effectiveness of monetary policy in Ghana. The empirical results revealed that as the degree of trade openness increases, monetary policy becomes more effective in reducing the rate of inflation. However, monetary policy is less effective to reduce the output gap. Therefore, the results suggest that monetary policy authorities must take into account the level of trade openness whenever they are formulating monetary policy.

KEYWORDS:

• Inflation
• monetary policy
• output
• trade openness

JEL CLASSIFICATIONS:

• F0
• 04

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Ferdinand Ahiakpor

Dr Ferdinand Ahiakpor, Senior Lecturer of Economics at the School of Economics, University of Cape Coast, Ghana. His research interest is in the fields of Labour Economics and Monetary Economics.

William Cantah

Dr William Cantah is a Lecturer at the School of Economics, University of Cape Coast, Ghana. His current research interest lies in the fields of Monetary policy effectiveness, International Economics and Economic Policy modelling.

William Brafu-Insaidoo

Dr William Brafu-Insaidoo is a Senior Lecturer of the School of Economics, University of Cape Coast. DR Insaidoo’s research currently focuses on macroeconomics, public sector economics and international economics.

Eric Bondzie

Dr Eric Bondzie is a Lecturer at the Department of Economic Studies, University of Cape Coast. His research interest is in macroeconomics, public economics and economic policy modelling.