Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 2 (2014), No. 3, Pages 16-30

DOI: 10.12735/jfe.v2i3p16

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Separating Monetary and Structural Causes of Inflation

Simon K. Harvey1  Matthew J. Cushing2 

1Department of Finance, University of Ghana Business School, University of Ghana, Ghana
2Department of Economics, College of Business Administration, University of Nebraska–Lincoln, U.S.A.

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The paper employs a structural vector autoregression (SVAR) to model inflation so as to identify the relative importance of shocks to real output growth, monetary growth and exchange rate depreciation in inflation dynamics in developing countries using data from Ghana. The results show that either monetary growth or structural factors alone do not explain the inflation experience and that the structural factors dominate monetary growth in the inflation dynamics. There is a fairly strong feedback between inflation and exchange rate depreciation both of which have weak relationship with monetary growth. These suggest that policies that boost domestic supply and therefore reduce import demand will be more potent than direct monetary management to curb inflation in Ghana.

JEL Classifications: E52, E31

Keywords: monetary, structural, inflationmonetary, structural, inflation

To Cite this Article: Harvey, S. K., & Cushing, M. J. (2014). Separating monetary and structural causes of inflation. Journal of Finance and Economics, 2(3), 16-30.

Copyright © Simon K. Harvey & Matthew J. Cushing

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Separating Monetary and Structural Causes of Inflation