Economic Policies, Political Shocks, and the Ghanaian Business Cycle : A Historical Perspective

This study examines the causes of Ghana's business cycle fluctuations from a historical perspective. We show that Ghana's business cycle is influenced by a complex interplay of several factors (including fiscal policy, monetary policy, exchange rate policy, trade policy, and political factors) rather than being closely related to a single dominant factor. In the pre-1985 era, Ghana implemented several inefficient economic policies and experienced several military coups, reinforcing each other to cause large fluctuations in the business cycle. The post-1985 era, on the other hand, coincided with good economic policies and a relatively stable political environment that mutually reinforced each other to stabilize Ghana's business cycle. Since the mid-1980s, Ghana's business cycle has become less correlated with the world's business cycle, the OECD business cycle, and the SSA business cycle, suggesting a more resilient economy primarily driven by domestic rather than external factors and shocks. This result confirms the relative independence of Ghana's economy over the post-1985 era. On the various domestic factors driving the business cycle, our findings indicate that supply-side factors dominate demand-side factors. These insights hold significance in selecting a business cycle model for Ghana's economy