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5)
Effects of Inflation Targeting Policy on Inflation Rates and Gross
Domestic Product in Ghana

*l+ert !uni
,epartment of *dministration( -ni.ersit/ of !rofessional Studies( *00ra( !.%. Bo1 23 1)9( 2egon

Brig4t *ddi/ia4 %sei
5esear04 6entre( -ni.ersit/ of !rofessional Studies( *00ra( !.%.Bo1 23 1)9( 2egon
Email7+rig4t.osei8upsamail.edu.g4

64arles Barnor
,epartment of Ban9ing and :inan0e( -ni.ersit/ of !rofessional Studies( *00ra( !.%. Bo1 23 1)9( 2egon

Abstract
Inflation targeting 4as +een widel/ adopted in +ot4 de.eloped and de.eloping e0onomies. ;4e Ban9 of 34ana
B%3" formall/ adopted an inflation targeting regime as a ma<or monetar/ poli0/ framewor9 in Ma/ 200=(
+e0oming t4e se0ond *fri0an 0ountr/ to do so after Sout4 *fri0a. ;4is resear04 paper soug4t to in.estigate t4e
effe0t of inflation targeting poli0/ on inflation rates and gross domesti0 produ0t. ;4e resear04 adopted t4e
>uantitati.e met4od +/ 0omparing t4e effe0t of inflation targeting poli0/ on inflation rates and gross domesti0
produ0t in t4e pre inflation targeting period 2000-200'" and t4e post inflation targeting period 200=-201$". ;4e
resultsre.ealed t4at t4ere was a signifi0ant differen0e +etween t4e mean inflation rates for t4e two periods. ;4e
inflation rate for t4e post inflation targeting period is signifi0antl/ less t4an t4e pre-inflation targeting period. It
was also re.ealed t4at inflation targeting did not 4a.e a statisti0all/ signifi0ant effe0t on e0onomi0 growt4 in
34ana. ;4e stud/ 0on0luded t4at poli0/ ma9ers are en0ouraged to e1plore ot4er poli0/ alternati.e in0luding
inflation targeting regime to ma1imi?e produ0tion in t4e e0onom/.
Keywords: Inflation ;argeting !oli0/( Inflation 5ates( 3ross ,omesti0 !rodu0t

1! Introduction
%ne of t4e primar/ responsi+ilities of 6entral Ban9s is to use .arious monetar/ poli0ies to a04ie.e some degree
of pri0e sta+ilit/ in an e0onom/. ;4is is true +e0ause w4et4er 0entral +an9s are go.erned +/ Monetarist or +/
@e/nesian e0onomists( pri0e sta+ilit/ ena+le planners and poli0/ ma9ers plan wit4in long time 4ori?on. ;4e
pri0e sta+ilit/ responsi+ilit/ dri.e of 0entral +an9s 4a.e +een re.ealed in t4e wor9s of &ol09er 19#$"(
3reenspan 199'( p.1"( and Blinder 199)( p.=".3reenspan 199'( p.1"( +elie.es t4at t4e o+<e0ti.e of 0entral
+an9s is to a04ie.e pri0e sta+ilit/A a situation in w4i04 t4e e0onomi0 agents no longer ta9e a00ount of t4e
prospe0ti.e 04ange in t4e general pri0e le.el in t4eir e0onomi0 de0ision ma9ing.
Man/ e0onomists +elie.e t4at( inflation arises w4en t4e mone/ in 0ir0ulation in an e0onom/ is more t4an t4e
suppl/ of goods and ser.i0e.*00ording to 2o.oie 199'( p.5$5"( Binflation is mainl/ an e10ess demand
p4enomenon( indu0ed +/ an e10ess suppl/ of mone/C. In ot4er words( inflation 0an +e termed as a situation
w4ere too mu04 mone/ is following too few goods. ;4e root 0auses of inflation are largel/ attri+uted to fis0al
defi0it-finan0ing +/ go.ernment t4roug4 t4e printing of mone/. ;o arrest t4e a+o.e situation( poli0/ ma9ers in
re0ent times 4a.e resorted to monetar/ inflation targeting strateg/( w4i04 is a departure from t4e pre.ious fis0al
poli0/ inflation targeting regime. ;o affirm t4e a+o.e departure +/ 0entral +an9s( ,e+elle( Masson( Sa.astano(
and S4arma 199#( p.2" 4a.e reiterated t4at Bif fis0al dominan0e e1ists( inflationar/ pressures of a fis0al origin
will undermine t4e effe0ti.eness of monetar/ poli0/ +/ o+liging t4e 0entral +an9 to a00ommodate t4e demands
of t4e go.ernment( sa/( +/ easing interest rates to a04ie.e fis0al goalsC.
;4e term inflation targeting entered into mainstream e0onomi0s w4en in 1990 New Dealand em+ar9ed on a
wide-range e0onomi0 and go.ernmental reforms t4at soug4t to define performan0e measures and s/stems of
a00ounta+ilit/ for all go.ernment departments. ;4e reforms initiated under t4e 5eser.e Ban9 *0t of 19#9
esta+lis4ed t4ree poli0/ framewor9s du++ed inflation targeting.
;4e first framewor9 esta+lis4ed dialogue +etween t4e 0entral +an9 and t4e go.ernment 0on0erning 0riteria of
measuring t4e 0entral +an9Es performan0e. ;4e main /ardsti09 esta+lis4ed under t4e first framewor9 was pri0e
sta+ilit/ or inflation targeting. ;4e se0ond framewor9 granted t4e 5eser.e Ban9 power to pursue its assigned
goal wit4out go.ernment interferen0e t4at is t4e 5eser.e Ban9 must +e independent". ;4e last framewor9
esta+lis4ed means of a00ounta+ilit/ w4ere+/ t4e goal is made pu+li0 and t4e 3o.ernor of t4e 5eser.e Ban9 is
4eld a00ounta+le for t4e +an9Es performan0e.
*00ording to 5o04on and 5ossi 200'" sin0e t4e adoption of inflation targeting in New Dealand in 1990 and
6anada in 1991( a num+er of 0ountries 4a.e now adopted an inflation targeting regime.In fa0t t4e @e/nesian
e0onomists +elie.e t4at inflation targeting is t4e +est alternati.e w4en it 0omes to influen0ing inflation
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55
e1pe0tations.*s t4e name suggests(inflation targeting puts pri0e sta+ilit/ as t4e primar/ o+<e0ti.e of t4e 0entral
+an9( and t4e inflation target pro.ides w4at is 9nown as t4e nominal an04or for monetar/ poli0/
framewor9.Be0ause t4e poli0/ framewor9 0learl/ spe0ifies t4e inflation o+<e0ti.es and a 0lear 0ommitment to
a04ie.ing t4em( it 4elps to an04or t4e pu+li0Es inflation e1pe0tations(as well as t4e e1pe0tations of future
inflation to influen0e pri0es and wages t4ere+/ impro.ing t4e general e0onom/.;4e a+o.e situation leads man/
6entral Ban9s to +elie.e t4at t4e +est 0ontri+ution t4at monetar/ poli0/ 0an ma9e to growt4 is to pro.ide a low
and sta+le inflation en.ironment t4at is 0ondu0i.e to sustaina+le long-term growt4.
Inflation targeting regime proponents 4a.e argue t4at( t4e poli0/ strateg/ leads to more 0redi+le( transparent(
a00ounta+le and a +etter management of inflation. @/dland and !res0ott 19==" and 3ordon 19#$" 4a.e all
attested to t4e a+o.e assertion +/ sa/ing t4at( t4e more independent 0entral +an9s are t4e more t4e/ are a+le to
redu0e t4e rate of inflation. 6ontrar/ to t4e a+o.e( inflation targeting poli0/ strateg/ is not uni.ersall/ s4ared as
more 0entral +an9s 4a.e not mo.ed to adopt t4e strateg/. In t4e -nited States( t4e de+ate o.er t4e adoption of
inflation targeting poli0/ option 4as resulted in man/ e0onomists li9e :riedman 200)" and Mis49in 200)"
sa/ing t4at( inflation targeting pla0es too mu04 emp4asis oninflation rates to t4e detriment of ot4er monetar/
goals. Stigli? 200#" 4as also stated t4at( inflation targeting is +eing put to t4e test( and it will almost 0ertainl/
fail.
*00ording to Epstein 2002" during t4e last de0ade( 0entral +an9s in de.eloping 0ountries 4a.e also in0reasingl/
adopted monetar/ poli0/ approa04es t4at fo0us on lowering t4e rate of inflation wit4 little regard to t4eir impa0t
on Freal fa0torsF su04 as po.ert/( emplo/ment( in.estment or e0onomi0 growt4. ;4e reason for t4e adoption of
inflation targeting in de.eloping 0ountries is t4at( o.er time( as inflation rises t4e 0ost of goods and ser.i0es
in0rease( and t4e .alue of t4e lo0al 0urren0/ falls +e0ause 0onsumers are not a+le to pur04ase t4e same >uantit/ of
goods and ser.i0es t4e/ pre.iousl/ 0ould. ,rawing from t4is( it is rele.ant to 0ontrol inflation in order to redu0e
t4e unit of a 0urren0/ t4at is used to pur04ase fewer goods as time progresses.
;4e Ban9 of 34ana B%3" formall/ adopted an inflation target in Ma/ 200=( +e0oming t4e se0ond *fri0an
0ountr/ to do so after Sout4 *fri0a. ;4e adoption of inflation targeting poli0/ regime 4as t4erefore in0reased
transparen0/ and a00ounta+ilit/ of t4e B%3( w4i04 4as now resorted to pu+lis4ing inflation reports. It must
4owe.er +e noted t4at almost se.en =" /ears after t4e adoption of inflation targeting +/ t4e B%3 little resear04
4as +een 0ondu0ted to re.iew t4e effe0ti.eness of t4is poli0/ in sta+ili?ing t4e general pri0e le.el. Gowe.er as
t4e poli0/ of inflation targeting spreads( man/ poli0/ ma9ers are as9ing( is inflation targeting t4e +est poli0/
option for 34anaH %n se.eral forums( t4e B%3 4as <ustified t4e inflation targeting poli0/ regime( sa/ing t4at it
is t4e +est poli0/ option towards ta09ling 34anaEs two de0ades inflation 04allenges. ;4is assertion is 4owe.er
not surprising sin0e t4e B%3 is t4e 0ustodian of t4e poli0/. Based on t4e a+o.e arguments( 0ondu0ting resear04
into 34anaEs inflation targeting poli0/ is t4e onl/ <ustifia+le option t4at 0an re.eal s0ientifi0all/( t4e effe0ts of
inflation targeting poli0/ on inflation rates( and 4ow signifi0antl/ it 4as affe0ted 3,! growt4.
In addition( t4e aut4ors also +elie.e t4at man/ resear04es on inflation targeting poli0/ regime 4a.e tended to +e
0on0entrated in t4e industriali?ed e0onomies. *mong t4ese resear04es are Ials4 2009"( Mis49in and S04midt-
Ge++el 200="( S4eridan 2005"( &ega and Iin9elried 2005" and Iu 200)". ;4oug4 ot4er studies 4a.e gi.en
e.iden0e from de.eloping 0ountries perspe0ti.es( t4ese 4a.e +een 0on0entrated in t4e 2atin *meri0an regions.
2ittle e.iden0e 4as 4owe.er +een o+tained from an *fri0an perspe0ti.e. Moreo.er( man/ of t4is empiri0al
e.iden0e 4a.e fo0used on t4e effe0ts of inflation targeting poli0/ regime on inflation rates and inflation
e1pe0tations. Gardl/ 4a.e most resear04es relate t4e effe0ts of inflation targeting poli0/ regime on 3,! growt4.
;4e aut4ors +elie.et4at( +/ resear04ing into t4e effe0ts of inflation targeting poli0/ regime on inflation rates and
3,! growt4 in a spe0ifi0 en.ironment 34ana" will +ridge t4e gap in 9nowledge +etween e.iden0e in t4e
industriali?ed world( and ot4er de.eloping 0ountries. ;4is will t4erefore 0ontri+ute to t4e e1isting 9nowledge in
t4e field of inflation targeting. ;4is stud/ 4as +een organi?ed into si1 se0tions( t4is in0lude t4e introdu0tion(
t4eoreti0al and empiri0al literature re.iew( met4odolog/( results( dis0ussion( and finall/ re0ommendation and
0on0lusion.

"! #iterature Re$iew
Inflation is t4e 0ondition of generali?ed e10ess demand( in w4i04 too mu04 mone/ 04ases too few goods.
Similarl/ 2o.oie 199'" defined Binflation as mainl/ an e10ess demand p4enomenon( indu0ed +/ an e10ess
suppl/ of mone/Cp.5$5".
Bot4 definitions a+o.e are 0ausal. In t4e first 0ase inflation is tra0ed to demand in t4e goods mar9etA in t4e
se0ond inflation is e1plained as t4e result of a 04ange in t4e mone/ suppl/. In re0ent dis0ussions :riedman 19=0"
4as populari?ed t4e monetarist 0ausal definition as followsABInflation is alwa/s and e.er/w4ere a monetar/
p4enomenonJ and 0an +e produ0ed onl/ +/ a more rapid in0rease in t4e >uantit/ of mone/ t4an in outputC
p.2)".
It 0an +e dedu0ed from t4e definitions a+o.e t4at inflation o00urs in an e0onom/ w4en too mu04 mone/ is
04asing too few goods and ser.i0es o.er a period of time.
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5'
"1Theories of Inflation
"11 %onetarist &iew
*00ording to Jo4nson 19#2( p.2$9" t4e monetarist .iew of inflation is asso0iated wit4 and ultimatel/ 0ausall/
dependent on a rate of in0rease of mone/ suppl/ signifi0antl/ in e10ess of t4e rate of growt4 of real outputA t4e
differen0e +etween t4e two rates +eing t4e rate of inflation. ;4e t4eor/( it s4ould +e noted( does not assert t4at
inflation is attri+uta+le to monetar/ ignoran0e or mismanagementA monetar/ e1pansion and t4e 0onse>uential is
a met4od of ta1ing t4e 4older of mone/ to w4i04 ma/ well +e dri.en +/ politi0al 0ir0umstan0es( in full
9nowledge of w4at t4e/ are doing. ;4e t4eor/ rests on t4e proposition t4at t4ere is a sta+le relation +etween real
in0ome and t4e amount of real pur04asing power t4e pu+li0 wants to 4old in monetar/ formA t4at t4is mone/-to-
in0ome relation is in.ersel/ related to t4e e1pe0ted rate of inflation( t4e erosion of t4e pur04asing power of
mone/ t4roug4 inflation 0onstituting an important element of t4e 0ost of 4olding mone/A and t4at in t4e long run
people will 0ome to e1pe0t t4e rate of inflation indu0ed +/ t4e aut4orities t4roug4 t4eir poli0/ respe0t to
monetar/ e1pansion.
;4e assumption t4at t4e pu+li0 form e1pe0tations a+out inflation( ad<ust t4em in t4e lig4t of e1perien0e and a0ts
on t4ese e1pe0tations in its +e4a.ior( is a 0ru0ial differen0e +etween t4e >uantit/ approa04 to inflation and t4e
0urrentl/ dominant @e/nesian approa04.
"1"Keynes' $iew of the functions of a central ban(
*00ording to @e/nesEs 3eneral ;4eor/ 19$'( p.159" mone/ is neit4er in t4e s4ort run nor t4e long run( neutral.
@e/nes general t4eor/( t4erefore( suggested t4at an/ monetar/ poli0/ framewor9 t4at di0tated t4e >uantit/ of
mone/ or t4e rate of interest in a s/stem will impa0t dire0tl/ on real e0onomi0 out0ome. 6onsistent wit4 t4e
a+o.e t4erefore( @e/nes suggested t4at 0entral +an9s 4a.e two primar/ fun0tions. ;4e first fun0tion is t4e
pro.ision of li>uidit/ in t4e s/stem( and t4e se0ond fun0tion is t4e determination of inflation rate.
Iit4 t4e a+o.e suggestions in mind( @e/nes 19$0" stated t4at B+an9 0redit is t4e pa.ement along w4i04
produ0tion tra.els( and t4e +an9ers if t4e/ 9new t4eir dut/( would pro.ide t4e transport fa0ilities to <ust t4e
e1tent t4at is re>uired in order t4at t4e produ0tion powers of t4e 0ommunit/ 0an +e emplo/ed at t4eir full
0apa0it/C p. 220".
;4e a+o.e .iew implies t4at 0entral +an9s are e1pe0ted to e1tend 0redit into t4e e0onomi0 s/stem as 04eapl/ as
possi+le so long as t4e e0onom/ 4as signifi0ant idle resour0es. ;4e se0ond fun0tion of t4e 0entral +an9 suggested
+/ @e/nes 19$0" is t4at( t4e 0entral +an9 must ensure finan0ial sta+ilit/ and orderliness in t4e nationEs finan0ial
mar9ets t4ere+/ ensuring t4at mone/ and output are in e>uili+rium +ot4 in t4e s4ort and long runs.
"1) Elements of Inflation Targeting
BInflation targeting is a re0ent monetar/ poli0/ strateg/ t4at en0ompasses fi.e mainelementsA a pu+li0
announ0ement of medium-term numeri0al targets for inflation(an institutional 0ommitment to pri0e
sta+ilit/ as t4e primar/ goal of monetar/ poli0/( to w4i04 ot4er goals are su+ordinated( an information
in0lusi.e strateg/ in w4i04 man/ .aria+les( and not <ust monetar/ aggregates or t4e e104ange rate( are
used for de0iding t4e setting of poli0/ instruments( in0reased transparen0/ of t4e monetar/ poli0/
strateg/ t4roug4 0ommuni0ation wit4 t4e pu+li0 and mar9ets a+out t4e plans( o+<e0ti.es( and de0isions
of t4e monetar/ aut4orities( and in0reased a00ounta+ilit/ of t4e 0entral +an9 for attaining its inflation
o+<e0ti.esC. Mis49in 2001( pp.11=-2="
;4e ad.antages asso0iated wit4 inflation targeting is t4at( t4e 0on0ept is 0onsidered to +e transparent and t4e
0ooperation among sta9e4older eliminates un0ertainties 0on0erning future inflation rates. *not4er ad.antage
asso0iated wit4 inflation targeting is t4at t4e s/stem is fle1i+le and t4e 0entral +an9 0an a0t well +efore an/
in0iden0e of inflation 4appens. 2astl/ t4e poli0/ framewor9 in0reases a00ounta+ilit/ on t4e part of t4e 0entral
+an9 sin0e all sta9e4olders are aware of t4e 0entral +an9Es goals. *mong t4e inflation targeting parti0ipants(
inflation rate of ?ero and two per0ent is 0onsidered appropriate.
"" Em*irical #iterature Re$iew
In .arious studies( &ega and Iin9elried 2005"( Batini and 2a1ton 200=" and S04midt-Ge++el 200=" all
re.ealed t4at t4ere were signifi0ant and positi.e effe0ts of inflation targeting among inflation targeting samples
t4at in0luded de.eloping 0ountries. :or e1ample in t4eir stud/( &ega and Iin9elried 2005"( sampled 109
inflation targeting 0ountries of w4i04 2$ are de.eloping 0ountries( using t4e propensit/ s0oring met4odolog/
t4e/ re.ealed lower inflation rates w4en inflation targeting poli0ies were implemented. ;4is is 4owe.er
0onsistent wit4 earlier 0on0lusions of 6or+o et al. 2000"( Neumann and .on Gagen 2002"( and !etursson 200)".
In a re0ent stud/( 3on0al.as and Salles 200#"( re.ealed t4at inflation lowered from 1=K to '.55K among
inflation targeting de.eloping 0ountries +etween t4e pre and post inflation era. 6onsistent wit4 t4e a+o.e Ball
and S4eridan 2005" 0on0luded t4at t4ere were statisti0all/ and e0onomi0all/ signifi0ant redu0tions in inflation
among sampled inflation targeting 0ountries sur.e/ed.

)! %ethodology
;4is stud/ uses t4e >uantitati.e resear04 met4od and t4e nature of t4e resear04 design is 0ausal. Se0ondar/ data
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&ol.'( No.21( 201)

5=
was 0olle0ted from t4e Ban9 of 34ana B%3" on mont4l/ inflation rates from 2000 to 200=*pril"( representing
t4e pre-inflation targeting poli0/ eraA and 200= Ma/" to 201$ representing t4e post-inflation targeting poli0/ era.
;4e 04oi0e of t4e parti0ular mont4s is as result of t4e Ban9 of 34ana announ0ing offi0iall/ in Ma/ 200= t4at it
was now pra0ti0ing inflation targeting. *nnual 3ross ,omesti0 !rodu0t 3,!" was also 0olle0ting for t4e pre
and post inflation targeting poli0/ era.
)1 Po*ulation and +am*ling
;4e stud/ population was all mont4l/ inflation rates and annual 3,! at pur04ase .alue from 2000 to 201$.;4e
total sample si?e of t4e stud/ is eig4t /ears 200$-2010". Sin0e inflation targeting poli0/ started in 200=( a se.en
/ear sample 2000 -200'" was ta9en for t4e pre-inflation era( and 0orresponding se.en /ears 200=-201$" was
also sample for t4e post inflation.
)" Data Analysis
;4e data o+tained was anal/?ed using tests of mean differen0es and regression. ;4e first anal/ti0al te04ni>ue of
t-test was emplo/ed to as0ertain t4e differen0es in mean inflation +etween t4e pre and post-inflation targeting
period. 5egression was used to as0ertain t4e effe0t of pre-inflation on 3,! as well as t4e effe0t of post-inflation
on 3,!. * dumm/ .aria+le was used to 0apture t4e effe0t of inflation targeting on e0onomi0 growt4. ;4us( t4e
model spe0ified to 0apture t4e effe0t of inflation targeting on e0onomi0 growt4 for t4is stud/ is of t4e form7
1 2
1"
t t
Y Inf IT = + + +
I4ere L represents e0onomi0 growt4( inf represents annual inflation rate. IT represents t4e dumm/ .aria+le
for t4e inflation targeting. It ta9es a .alue of 0 from 200-200' and a .alue of one from 200= to 201$. *ll t4e
results are assessed at t4e 5K le.el of signifi0an0e.

,! Presentation of Results
;4is se0tion presents t4e results from t4e t-tests and t4e regressions from t4e data 0olle0ted.
;o a04ie.e t4e resear04 o+<e0ti.e of w4et4er t4ere is signifi0ant differen0e +etween t4e inflation rate for t4e pre
and post inflation targeting poli0/ periods( ta+le 5.1 re.ealed t4ere is signifi0ant differen0e +etween t4e mean
inflation rates for t4e two periods at t4e 5K le.el of signifi0an0e. ;4e inflation rate for t4e post inflation
targeting period is signifi0antl/ less t4an t4e pre-inflation targeting period.
;a+le 5.1!aired Samples ;est of !re and !ost Inflation ;argeting
%ean +td De$ +td Error T-$alue.*-$alue/
Pre IT 0Post IT 2.05 0.29#9 0.0#291 2).==0.000"

;4is is supported +/ inflation figures o.er t4e period w4i04 4ad 0onsistent de0line in inflation to t4e point of t4e
0onsistentl/ witnessing single digit inflation o.er a period of o.er fourteen 1)" mont4s. It must +e noted t4at
single-digit inflation was ne.er a04ie.ed during t4e period of t4e post inflation targeting.
;a+le 5.27Effe0t of Inflation ;argeting on 3,!
,ependent &aria+le7 3,!M35%I;G
Met4od7 2east S>uares
Sample7 2000 201$
In0luded o+ser.ations7 1)


&aria+le 6oeffi0ient Std. Error t-Statisti0 !ro+.


IN:2*;I%N -0.110#1$ 0.0#='99 -1.2'$5'5 0.2$25
I; 2.115$29 1.52###0 1.$#$5#1 0.19$9
6 =.)$=99# 2.10)#1$ $.5$$#05 0.00)=


5-s>uared 0.)05)5$ Mean dependent .ar '.'15010
*d<usted 5-s>uared 0.29=$5$ S.,. dependent .ar 2.##=91=
S.E. of regression 2.)20='# *9ai9e info 0riterion ).=9$)5'
Sum s>uared resid ').)'12# S04war? 0riterion ).9$0$9=
2og li9eli4ood -$0.55)19 Gannan-Nuinn 0riter. ).=#0==9
:-statisti0 ).=50=)0 ,ur+in-Iatson stat 2.$))252
!ro+:-statisti0" 0.02=2#$


;o determine t4e inflation rate after t4e inflation targeting poli0/ and its effe0ts on 3,! from 2000 to 201$( a
test of 4/pot4esis was 0ondu0ted using t4e model spe0ified in t4e met4odolog/. E.en t4oug4 t4e results
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&ol.'( No.21( 201)

5#
indi0ated t4at a redu0tion in inflation will lead to an in0rease in e0onomi0 growt4( inflation did not 0ontri+ute
signifi0antl/ to t4e 3,!. In addition( t4e dumm/ .aria+le introdu0ed to 0apture t4e effe0t of inflation targeting
on e0onomi0 growt4( did not statitisti0all/ affe0t e0onomi0.

1! Discussion of Results
;4e spe0ifi0 o+<e0ti.e of t4is stud/ is to e.aluate t4e effe0t of inflation targeting poli0/ on inflation rates and its
effe0t on 3,! growt4. :rom t4e results a+o.e( it 0an +e said t4at inflation targeting poli0/ 4as positi.e effe0t on
inflation rates in 34ana. Sin0e during t4e inflation targeting poli0/ regime( inflation redu0ed su+stantiall/.
;4oug4 inflation did not redu0e to t4e ranges +etween ?ero and two per0ent as pres0ri+e +/ proponents of
inflation targeting regime( in t4e 34anaian situation t4e redu0tion was statisti0all/ signifi0ant.
;4e a+o.e s0enario is 4owe.er 0onsistent wit4 t4e .er/ o+<e0ti.e of inflation targeting poli0/ w4i04 suggests
t4at( inflation targeting puts pri0e sta+ilit/ as t4e primar/ o+<e0ti.e of t4e 0entral +an9( and t4e inflation target
pro.ides w4at is 9nown as t4e nominal an04or for monetar/ poli0/ framewor9.Be0ause t4e poli0/ framewor9
0learl/ spe0ifies t4e inflation o+<e0ti.es and a 0lear 0ommitment to a04ie.ing t4em( it 4elps to an04or t4e
pu+li0Es inflation e1pe0tations(as well as t4e e1pe0tations of future inflation to influen0e pri0es and wages
t4ere+/ impro.ing t4e general e0onom/. ;4e a+o.e situation leads man/ 6entral Ban9s to +elie.e t4at t4e +est
0ontri+ution t4at monetar/ poli0/ 0an ma9e to growt4 is to pro.ide a low and sta+le inflation en.ironment t4at is
0ondu0i.e to sustaina+le long-term growt4. ;4e 34anaian results is also 0onsistent w4i04 resear04 0ondu0ted +/
Ials4 2009" w4i04 re.ealed t4at inflation was lower among inflation targeting 0ountries t4an for t4eir
0ounterparts in t4e non-inflation targeting 0ountries.
Similarl/ t4e stud/ 0ompared 3,! growt4 in pre and post inflation targeting poli0/ periods. In t4e 34anaian
situation t4e redu0tion in inflation rates asso0iated wit4 inflation targeting did not 4a.e a signifi0ant effe0t on
3,! growt4 for +ot4 periods. ;4is t4erefore suggests t4at a redu0tion in inflation does not ne0essaril/ translate
into e0onomi0 growt4.

2! 3onclusion and Policy Im*lication
;4e stud/ in.estigated t4e effe0t of inflation targeting on inflation rates and gross domesti0 produ0t in 34ana
using se.en =" /ears pre-inflation period 2000-200'" and se.en =" /ears post inflation period 200=-201$" data.
-sing a >uantitati.e met4od t4e stud/ in.estigated t4e 0ausal effe0ts of inflation targeting poli0/ on gross
domesti0 produ0t. ;4e stud/ assessed t4e effe0t of inflation targeting poli0/ on inflation rates and gross domesti0
produ0t. ;4e stud/ found t4at inflation targeting poli0/ 4as an effe0t on inflation rates sin0e t4e redu0tion in
inflation rate during t4e post inflation period is statisti0all/ signifi0ant. In t4e 0ase of inflation targeting and
gross domesti0 produ0t( inflation targeting does not 4a.e su+stantial effe0t on gross domesti0 produ0t( sin0e t4e
result is not statisti0all/ signifi0ant.
!oli0/ ma9ers are en0ouraged to 0riti0all/ 0onsider t4e issue of inflation targeting in 34ana. ;4oug4 inflation
targeting is a+le to sta+ili?e pri0es to some e1tent( it does not full/ translate into e0onomi0 growt4. !oli0/
ma9ers are en0ouraged to e1plore ot4er poli0/ option in0luding t4e 0urrent inflation targeting poli0/ option
0urrentl/ pursed.

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