Implications of macroeconomic controls in Ghana

ABSTRACT Ghana’s desire to achieve sustainable economic growth with relatively stable price level pursue both monetary and fiscal policies that could lead to macroeconomic. This study examines the effects of fiscal and monetary policy on economic growth and determine the level of convergence of growth for Ghana by applying structural equation modeling (SEM) using time series data from 2008 to 2017. Both short run and long-run results revealed that the ratio of government spending to private investment was statistically significant and it exerted a positive impact on economic growth, an indication that government expenditure is a key channel through which economic growth can be achieved. It was also revealed that real interest rate which is a monetary policy tool have a negative effect on economic growth in Ghana. The study also revealed that government spending shocks decreases private investment in Ghana, which results in crowding out in the economy. It was recommended that to achieve higher and sustainable economic growth, government must embark on expansionary fiscal policies through investment in infrastructure development to create jobs and generate income tax to finance other developmental projects. Also, the Bank of Ghana must reduce its lending rates to encourage private sector development to enhance growth and development of the economy