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Please use this identifier to cite or link to this item: http://hdl.handle.net/123456789/4784

Title: The relationship between Inflation, Inflation Uncertainty and Interest Rate in Ghana
Authors: Kwame, Doe Samuel
Issue Date: 16-Jun-2012
Abstract: The study investigates the relationship between inflation, inflation uncertainty and interest rate for the period 1984-2011 of Ghana. The work uses the monthly Consumer Price Index and Treasury bill rate to proxy inflation and interest rate respectively. The General Autoregressive Heteroscedasticity (GARCH) model is employed to estimate the conditional variability of inflation with Full Information Maximum Likelihood technique in all the estimations. The work uses two procedures to find out the relationship between inflation and inflation uncertainty. The first one is the two-step procedure of Granger causality test, which obtains generated variables in stage one as dependent variable in stage two. The result of this approach suggests a positive relationship between inflation and its certainty and that inflation uncertainty Granger causes inflation. The second procedure involves inclusion of conditional variance and inflation in the mean and conditional variance equations respectively. The result also confirms the two-stage procedure supporting Cukierman-Meltzer hypothesis. The study also finds out whether the validity of Fisher hypothesis, which proposes one-to-one relationship between inflation and interest rate, holds. A GARCH specification of the hypothesis and also augmented Fisher, of which conditional variance in included in the fisher relation were estimated separately. A positive and statistically significant relationship is established between inflation and interest rate in both cases. However, the one-to one relationship is not established, hence Fisher effect holds in its weak form, which has given credence to Tobin (1965). The direct relationship between inflation uncertainty and interest rate does not hold. The coefficient of inflation uncertainty is negative and not statistically significant. However, since there is a relationship between inflation and inflation uncertainty and between inflation and interest rate, it implies that there is indirect association between variability of inflation and interest rate through inflation.
Description: A dissertation submitted to the Department Of Economics, Faculty of Social Sciences, in partial fulfillment of the Requirements for the award of the degree of MASTER OF ARTS in Economics (Ma Economics),2012
URI: http://hdl.handle.net/123456789/4784
Appears in Collections:College of Arts and Social Sciences

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