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Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy

Published in Economics (Volume 4, Issue 6)
Received: 9 November 2015     Accepted: 19 November 2015     Published: 10 December 2015
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Abstract

The aim of this study is to empirically estimate the sensitivity of inflation and interest rate together with some key macroeconomic variables on real economic activity index. Secondly, to investigate the direction of causality between inflation and interest rate, interest rate and real economic activity index, as well as between inflation and real economic activity index. Thirdly, to investigate how the real economic activity reacts to shocks from inflation and interest rate and other key macroeconomic variables. A deterministic time series regression model, vector autoregressive model, cointegration method and Granger Causality Analysis were implored in the analysis. The results show that there exists a unique long-run relationship between real economic activity and the other variables. Accordingly, inflation is identified as important determinant of real economic activity growth in Ghana. Conversely, real economic activity was found not to significantly determine inflation and interest rate within the period under investigation. The relationship between inflation and interest rate is, however, significant determined positive in either direction. This means that the link between inflation, interest rate and economic activity is not immediately automatic.

Published in Economics (Volume 4, Issue 6)
DOI 10.11648/j.eco.20150406.14
Page(s) 118-124
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Macroeconomic, Vector Autoregressive, Cointegration, Granger Causality

References
[1] Mallik, G., & Chowdhury, A. (2001). Inflation and economic growth: evidence from four south Asian countries. Asia-Pacific Development Journal, 8(1), 123-135.
[2] Albu, L. L. (2006). Trends in the interest rate-Investment-GDP Growth Relationship. Journal for Economic Forecasting, 3(3), 5-13.
[3] Obamuyi, T. M. (2009). An investigation of the relationship between interest rates and economic growth in Nigeria, 1970-2006. Journal of economics and International Finance, 1(4), 093-098.
[4] Etornam, D. K., & Denis, D. (2015). Granger Causality Analysis on Ghana’s Macro-Economic Performance and Oil Price Fluctuations. Journal of Resources Development and Management, 6, 1-5.
[5] Al-Majali, A. A., & Al-Assaf, G. I. (2014). Long-run and short-run relationship between stock market index and main macroeconomic variables performance in Jordan. European Scientific Journal, 10(10).
[6] McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution Press.
[7] Shaw, 1973; ES Shaw; Financial deepening in economic development. Oxford University Press, New York, NY.
[8] Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.
[9] Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
[10] Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
[11] MacKinnon, J. G., & Queen's University (Kingston, Ont.). Institute for Economic Research. (1995). Numerical distribution functions for unit root and cointegration tests. Institute for Economic Research, Queen's University.
[12] Johansen, S. (1995). Identifying restrictions of linear equations with applications to simultaneous equations and cointegration. Journal of econometrics, 69(1), 111-132.
[13] Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2), 231-254.
[14] Charemza, W. W., & Deadman, D. F. (1997). New Directions in Econometric Practice: General to Specific Modelling, Cointegration and Vector Autoregresion. Edward Elgar.
[15] Granger, C. W. J., (1988): “Some Recent Developments in a Concept of Causality,” Journal of Econometrics. Vol. 39, pp. 199-211.
[16] Granger, C. W. J., (1969): “Investigating Causal Relations by Econometric Models and Cross Spectral Methods,” Econometrica. Vol. 37, pp. 424-438.
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  • APA Style

    Nana Kena Frempong, Peter Amoako-Yirenkyi, Akoto Yaw Omari-Sasu, Derrick Asamoah Owusu. (2015). Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy. Economics, 4(6), 118-124. https://doi.org/10.11648/j.eco.20150406.14

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    ACS Style

    Nana Kena Frempong; Peter Amoako-Yirenkyi; Akoto Yaw Omari-Sasu; Derrick Asamoah Owusu. Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy. Economics. 2015, 4(6), 118-124. doi: 10.11648/j.eco.20150406.14

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    AMA Style

    Nana Kena Frempong, Peter Amoako-Yirenkyi, Akoto Yaw Omari-Sasu, Derrick Asamoah Owusu. Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy. Economics. 2015;4(6):118-124. doi: 10.11648/j.eco.20150406.14

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  • @article{10.11648/j.eco.20150406.14,
      author = {Nana Kena Frempong and Peter Amoako-Yirenkyi and Akoto Yaw Omari-Sasu and Derrick Asamoah Owusu},
      title = {Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy},
      journal = {Economics},
      volume = {4},
      number = {6},
      pages = {118-124},
      doi = {10.11648/j.eco.20150406.14},
      url = {https://doi.org/10.11648/j.eco.20150406.14},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150406.14},
      abstract = {The aim of this study is to empirically estimate the sensitivity of inflation and interest rate together with some key macroeconomic variables on real economic activity index. Secondly, to investigate the direction of causality between inflation and interest rate, interest rate and real economic activity index, as well as between inflation and real economic activity index. Thirdly, to investigate how the real economic activity reacts to shocks from inflation and interest rate and other key macroeconomic variables. A deterministic time series regression model, vector autoregressive model, cointegration method and Granger Causality Analysis were implored in the analysis. The results show that there exists a unique long-run relationship between real economic activity and the other variables. Accordingly, inflation is identified as important determinant of real economic activity growth in Ghana. Conversely, real economic activity was found not to significantly determine inflation and interest rate within the period under investigation. The relationship between inflation and interest rate is, however, significant determined positive in either direction. This means that the link between inflation, interest rate and economic activity is not immediately automatic.},
     year = {2015}
    }
    

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    T1  - Emerging Relationships Between Macroeconomic Indicators and Real Economic Activities in Ghanaian Economy
    AU  - Nana Kena Frempong
    AU  - Peter Amoako-Yirenkyi
    AU  - Akoto Yaw Omari-Sasu
    AU  - Derrick Asamoah Owusu
    Y1  - 2015/12/10
    PY  - 2015
    N1  - https://doi.org/10.11648/j.eco.20150406.14
    DO  - 10.11648/j.eco.20150406.14
    T2  - Economics
    JF  - Economics
    JO  - Economics
    SP  - 118
    EP  - 124
    PB  - Science Publishing Group
    SN  - 2376-6603
    UR  - https://doi.org/10.11648/j.eco.20150406.14
    AB  - The aim of this study is to empirically estimate the sensitivity of inflation and interest rate together with some key macroeconomic variables on real economic activity index. Secondly, to investigate the direction of causality between inflation and interest rate, interest rate and real economic activity index, as well as between inflation and real economic activity index. Thirdly, to investigate how the real economic activity reacts to shocks from inflation and interest rate and other key macroeconomic variables. A deterministic time series regression model, vector autoregressive model, cointegration method and Granger Causality Analysis were implored in the analysis. The results show that there exists a unique long-run relationship between real economic activity and the other variables. Accordingly, inflation is identified as important determinant of real economic activity growth in Ghana. Conversely, real economic activity was found not to significantly determine inflation and interest rate within the period under investigation. The relationship between inflation and interest rate is, however, significant determined positive in either direction. This means that the link between inflation, interest rate and economic activity is not immediately automatic.
    VL  - 4
    IS  - 6
    ER  - 

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Author Information
  • Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

  • Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

  • Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

  • Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

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