Central bank policy formulation under COVID-19 in Ghana: A fit-for-purpose?

Johnson Worlanyo Ahiadorme; Deodat E. Adenutsi

doi:10.58567/jea02010007

Authors

Johnson Worlanyo Ahiadorme Macroeconomics Section, Ghana Statistical Service, Accra, Ghana https://orcid.org/0000-0003-4327-8267
Deodat E. Adenutsi Department of Accounting & Finance, HTU Business School, Ho Technical University, Ho, Ghana https://orcid.org/0000-0003-3021-6294

DOI:

https://doi.org/10.58567/jea02010007

Keywords:

Central Bank, Monetary Policy, Financial Stability, COVID-19, Emerging Markets

Abstract

This paper evaluates the fit-for-purpose of the monetary policy measures implemented by the Bank of Ghana in response to the COVID-19 pandemic. We examine the effectiveness of the BoG’s policy interventions in the context of vector autoregressions augmented with macroeconomic and financial indicators. We demonstrate that the BoG’s monetary policy measures have had nominal, real, and financial effects. The monetary interventions have been successful, as evidenced by the gradual reduction in the sovereign spread, improved financial stability, and increased real economic activity. Our findings suggest that balance sheet actions are less effective and should be moderated in the conduct of monetary policy in jurisdictions without zero lower bound constraints. However, the analysis indicates that in times of crisis, central banks should deploy both standard and non-standard tools to stabilize dysfunctional financial markets and avoid a deflationary spiral. The historical and variance decomposition of the data reveal that monetary policy shocks have historically made the largest contributions to the targeted macro-financial aggregates during the pandemic episodes.

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