Monetary Policy Frameworks for Emerging Markets

Monetary Policy Frameworks for Emerging Markets

Edited by Gill Hammond, Ravi Kanbur and Eswar Prasad

Financial globalization has made monetary policy formulation in emerging market economies increasingly complicated. This timely set of studies looks at the turmoil in global financial markets, which coupled with volatile inflation poses serious challenges for central banks in these countries. Featuring papers from the research frontier and front-line policymakers in developing and emerging market economies, the book addresses questions such as ‘What monetary policy framework is most suitable for these countries to confront the new challenges while they continue to open up to trade and financial flows?’, ‘What are the linkages between monetary stability and financial stability?’ and ‘Is inflation targeting or a fixed exchange rate regime preferable for developing and emerging markets?’

Chapter 16: Inflation Management and Monetary Policy Formulation in Ghana

Nii Kwaku Sowa and Philip Abradu-Otoo

Subjects: development studies, development economics, economics and finance, development economics, money and banking


Nii Kwaku Sowa and Philip Abradu-Otoo* INTRODUCTION 16.1 In spite of the apparent weaknesses inherent in the notion of the Wicksellian classical dichotomy, strong sentiments still persist in establishing a divide between ‘real’ and ‘nominal’ variables. This dichotomy is sometimes used to assign operational domains for institutions as well. Thus, a number of people, including economists, see central bank actions as those intended to affect, in the main, the nominal side of the economy. Thus, in this era of ‘inflation targeting’ central banks are generally accused of sacrificing growth, in particular, to meet their inflation targets.1 Economic policy management in Ghana has gone through several phases since independence. Until the 1980s, economic management of the early years of independence was dictated by the political ideology of sitting governments rather than ideas reflecting national consensus. Thus, as the regimes vary from dirigiste socialist regimes to quasi-capitalist regimes economic policy management was swayed between planned direct-control systems through to near laissez-faire systems. The general objective of policy has, however, always been the improvement in the living standard of the Ghanaian, with increased output and stable prices as the main goals. Monetary management by the central bank as a major arm of economic policy management in Ghana has, by law and practice, often focused on price stability. Yet, over the years, high rates of inflation – soaring into triple digits at the close of the 1980s – have undermined economic performance in Ghana. Even the strict monitoring of fiscal and monetary aggregates under the International...

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