GROUP 10 PROJECT WORK.docx

Was low collaboration between government fiscal

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was low collaboration between government fiscal policy and the monetary policy of the Bank of Ghana . To draw the curtain, it could be seen from the factors outlined and expatiated above that, inflation targeting has helped prevented inflation volatility, ensured the independence of the MPC and enhanced fiscal discipline. It also ensured forward looking expectation of inflation by monetary authorities and increased commitment by the Bank of Ghana in conducting effective monetary policy. However, there have been some shortcomings since the inception of IT policy. 3.0 LITERATURE REVIEW 3.1 A review of Theoretical Literature Inflation targeting as a monetary policy strategy is generally defined as “a framework for monetary policy characterized by the public announcement of official quantitative targets (or target ranges) for the inflation rate over one or more time horizons, and by explicit acknowledgment that low, stable inflation is the monetary policy’s primary long-run goal” (Bernanke, Laubach, and Mishkin 2001). From Mishkin (2011), for this monetary policy to work properly, elements like public announcement of medium-term numerical targets for inflation an institutional commitment to price stability as the primary, long-run goal of monetary policy and a commitment to achieve the inflation goal an information-inclusive strategy in which many variables and not just monetary aggregates are used in making decisions about monetary policy; increased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers 13 | P a g e
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Increased accountability of the central bank for attaining its inflation objectives are implemented. Understanding the monetary policy transmission mechanism, Mukherjee and Bhattacharya (2011) in their paper, ‘Inflation Targeting and Monetary Policy Transmission Mechanisms in Emerging Market Economies’ define the monetary policy transmission mechanisms “as the processes by which changes in monetary policy decisions affect the rate of economic growth and/or the inflation rate”. The study outlines the various stages in the monetary policy transmission process beginning with the changes in the policy rate which leads to movements in retail interest rates, that is commercial banks deposit and lending rates. The second stage of the transmission process occurs through the impact of changes in these retail rates on private consumption and investment, and thereby on aggregate demand. In the third stage changes in aggregate demand affect the level of activity in the domestic economy, which in turn should have the desired effect on the inflation rate in the final stage of the monetary policy transmission process. Under inflation targeting, they identify the short-term interest rate as the key monetary policy instrument.
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