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the years, the use of both fiscal and monetary policies has been instrumental
in the pursuit for achieving full-employment equilibrium, rapid economic
growth, price stability, and external balance in Ghana. Although, monetary
policy have appeared to be more flexible in terms of formulation and
implementation; it is relatively easy to alter and apply its policy tools.
Hence it has become a fashionable tool in influencing macroeconomic variables
in Ghana. Monetary policies have also proven reliable in for correcting short
term macroeconomic maladjustments.


the specific case of Ghana, monetary policies have evolved from the use of
direct instruments to the market based approach where the main target of policy
is the money supply (Alexander et al., 1995; Roe and Sowa, 1997). For instance
before the start of financial sector reforms in1992, the Bank of Ghana(BOG)
operated a system of managing the amount of money in the economy by using
direct controls and fixed exchange rate system. While this approach was
relatively easy to implement and also appealed to the government (which was mainly
interested in channeling resources to certain “priority sectors” of the
economy), there were several inefficiencies associated with its ability to give
the right signals for allocating resources efficiently. As the reform began,
this system was abolished in favour of a relatively more market-based form of
distributing and managing resources. Under the market-based system, the aim was
to use indirect instruments to regulate money supply in order to achieve price
stability and other economic objectives ( Quartey and Afful, 2014).


is a growing widespread consensus among economists that the single most
important goal of monetary policy should be the pursuit of price stability
(Biejer et al., 2000). This recognition has led to an increasing number of
central banks that have been granted with independence and provided with
mandates that give them the exclusive objective of controlling inflation and
preserving the stability of prices. This phenomenon has not been exclusive to
industrial economies such as the Czech Republic and Ghana


Bawumiah(2009) mentioned that Of all the monetary policy regimes implemented
since independence, the inflation targeting regime (and the accompanying fiscal
framework) has yielded the best performance thus far in terms of the key
macroeconomic indicators. The Ghanaian economy was more resilient to external
shocks under the inflation targeting regime (2001-2008) than under the monetary
targeting regime (1983-2001) and the direct control regimes (1957-1983)


Bank of Ghana was established in 1957 with the promulgation of Bank of Ghana
(BoG) Act 2002 (Act 612)  and the banking
Act (2004), the bank joined the growing community of statutory  independent central banks with an explicit  primary objective of price stability and a
secondary objective of promoting growth by regulating the money stock in Ghana.
This regulatory role of the bank of Ghana is anchored on the use of monetary

Ghana, the bank of Ghana Act 2002 specifically considers the BoG as an
inflation-targeting central bank by indicating the BoG Act 617, section 33(2)
that: “the bank in counteracting unusual
movements in the money and the prices in the country, shall use any of the
instruments of control conferred upon it under this Act or under any other
enactment to maintain and promote a balanced growth of the national economy”


major objective of monetary policy in Ghana is mainly achieved by causing
savers to avail investors of surplus funds for investment through appropriate
interest rate structures; stemming wide fluctuations in the exchange rate of
the cedi, proper supervision of banks and related institutions to ensure
financial sector soundness; maintenance of efficient payments system; applying deliberate
policies to expand the scope of the financial system so that the interior
economies which are largely informal, are financially included.


Performance of
the Manufacturing sector

economy is made up of three broad sectors which are: agriculture, industrial,
and the service sectors. Out of all the sub-sectors of the industrial sector:
mining and quarrying, manufacturing, electricity, water and sewage, and the
construction subsectors of the industrial sector, the manufacturing sub-sector
has been the major contributor to industrial GDP and a major drive of the
industrial sector of the economy and therefore its significance in the economic
growth of the country cannot be overlooked.


economy has also witnessed times of expansion and contraction but evidently,
the reported growth has not been a sustainable one as there is evidence of some
fluctuations in the growth rate of manufacturing output which is the main
engine of growth according to Kaldor’s first law which states that “the growth of the GDP is positively related
to the growth of the manufacturing sector”.


manufacturing sector is one of the leading sectors in an emerging economy such
as Ghana. It serves as an avenue for increasing productivity in relation to
import replacement and export expansion, creating foreign exchange earning
capacity, rising employment and per capita income, which causes unique
consumption patterns. As a result of these, the Ghanaian government over the
years has embarked on various policies to address this issue. Some of the

involved the use of monetary and fiscal policy. However, Anderson and Jodon

that monetary policy has grater and faster impact on economic activity thus
suggesting that greater reliance be place on monetary measures than fiscal
measure in the conduct of stabilization policy. Uniamikogbo and Enoma (2001) asserted
that monetary variable is more effective and dependable than fiscal variable in
affecting changes in economic activities such as the manufacturing sector.


more, Ogwuma(1995) opines that it creates investment capital at a faster rate
than any other sector of the economy while promoting wider and more effective
linkages among different sectors. Acknowledging this benefit of the sector, the
Ghanaian government has introduced various strategies to boost the sector such
as import substitution strategies, export promotion strategies, the
introduction of investment banks such as the NIB bank to induce credit
facilities to the sector and the one district one factory programme.


1.2       STATEMENT

is believed that the structure of the economy of developed and underdeveloped
countries are inevitable proofs of problems such as unstable economic growth,
unemployment, etc. Due to these economic problems, governments in various parts
of the world channel their efforts towards developing appropriate policies to
ensure economic stability. Despite the various regimes and policy instruments
used by the bank of Ghana(BoG) to ensure growth in its economic sectors, the manufacturing
sector has not been able to justify these objectives considering the poor unsustained
and fluctuating growth in manufacturing output of the sector. Over the years,
the manufacturing sector has struggled to maintain its credibility pertaining
to its contribution to GDP. It seems that the sector is unresponsive to the
efforts by the Bank of Ghana to create a favorable economic and operating environment
by the monetary policies implemented.

authorities have acknowledged the poor performance of the sector, there has
been very little written about this relationship. A research of this type will
examine Ghana’s monetary policy framework, and whether manufacturing output is
responsive to these policies.


1.3       OBJECTIVES

general objective of the study is to examine the impact of monetary policies on
the manufacturing sector of the economy of Ghana.


1.4       SPECIFIC

specific objectives are:

1.      To
examine the effects of interest rate, exchange rate, inflation rate and money
supply on manufacturing output

2.      To
ascertain the long-run relationship between monetary policy and manufacturing
sector in Ghana.


1.5       SCOPE

study will focus monetary policy issues using available data on Ghana. Examples
from other emerging or transition economies who have applied similar monetary
policy regimes will be used where appropriate(Malaysia, Nigeria,Check
republic). The use of examples from such countries is supported by the fact
that Ghana share similar characteristics, which includes: past history of
monetary policy regimes, poor performance of manufacturing sector.


study will cover the period of 19983-till present. This will allow for enough
data to cover a spectrum of various monetary policy regimes: ranging from
direct controls to monetary targeting and after the adoption of inflation
targeting in Ghana. This study is aimed at monetary policy stakeholders as well
as students of monetary economics.



The rest of the paper
is organized in four chapters. Chapter 2 presents a review of the literature on
monetary policies and manufacturing and provides a conceptual, theoretical, and
empirical framework monetary policy as a means of influencing macroeconomic
variables. Chcapter 3 is devoted to the research methodology outlining in more
detail sources of data, data collection methods, the types of analysis that
were performed and econometric models that were used. Chapter 4 uses available
data to conduct an empirical analysis of monetary policies has impated
manufacturing output in Ghana. Chapter 5 summarizes the findings and presents
conclusions and policy recommendations.

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