Ghanaian Inflation and Income Dynamics: Evidence on Volatility and Neutrality Thresholds

Ghanaian Inflation and Income Dynamics: Evidence on Volatility and Neutrality Thresholds | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Ghanaian Inflation and Income Dynamics: Evidence on Volatility and Neutrality Thresholds houssam boughabi This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7973447/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract The paper explains how inflation, monetary policy, and fiscal interventions interacted in Ghana from 2005 to 2014. A discrete-time macroeconomic model with money supply, taxation, household consumption, GDP per capita, and price adjustments as variables has been developed. The paper uses FIGARCH and GARCH models to investigate the volatility of inflation to decide if it has long-memory properties. The empirical findings show that the fractional differencing parameter $d = 0$ (Hurst exponent $H = 0.5$), which means that there is no persistent long-range dependence in inflation volatility. Hence, a standard GARCH(1,1) model is sufficient to describe short-term volatility dynamics, and shocks to conditional variance occur immediately but subside rapidly. Besides that, the research determines a monetary-fiscal neutrality threshold, which highlights the equilibrium where income growth balances the inflationary pressures; this threshold is assessed macroeconomically into general prices and compared to actual general prices to evaluate its validity. The results indicate that inflation in Ghana during this period is mainly of short-memory nature, thus reaffirming the role of short-term monetary and fiscal operations in price stabilization, and confirming the successful validation of the macroeconomic neutrality threshold linking income growth and price stability. JEL Classification . E31, E37, C32, O55, E44 Macroeconomics Inflation volatility statistical modelling monetary transmission threshold modeling Ghanaian economy Full Text Additional Declarations The authors declare no competing interests. Supplementary Files PythonCode.docx Model Python codes Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7973447","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":536486183,"identity":"a400fa8a-2747-4fd8-902d-34d06757e9c8","order_by":0,"name":"houssam boughabi","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA9ElEQVRIiWNgGAWjYBACAwYeEHWAwYCZ+cABUrWwJZCqhYHHgDiHmTPwHnzM8+uOvDk7z8fDBX9s5BnYDz9gulGDW4tlA1+yMW/fM8OdzbwbDs9sSzNs4EkzYM45hsdhB3jMpHl7DjNuOAzUwttwmLGBIYeBOYeNsBb7DYd5Hhzm+fPfvoH/DVDLPwJaeH4cTgRqYTjMw3YgsUECaEtuGx4th/mSDec2HE7e2cxmcJi3LTm5TeKZweHcPjxajvcefPDmz2Hb7fyHH3/m+WNn28+f/PBxzjfcWhiYgZgR2Rkgjx/AowEK/hBWMgpGwSgYBSMYAABudFObf+hDdwAAAABJRU5ErkJggg==","orcid":"https://orcid.org/0009-0005-3492-1910","institution":"National Institute of Statistics and Applied Economics","correspondingAuthor":true,"prefix":"","firstName":"houssam","middleName":"","lastName":"boughabi","suffix":""}],"badges":[],"createdAt":"2025-10-28 19:46:48","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":false,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":false},"doi":"10.21203/rs.3.rs-7973447/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7973447/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":94729909,"identity":"556f6a4d-7915-4936-9988-bd7df1d6b43e","added_by":"auto","created_at":"2025-10-30 07:05:29","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":516718,"visible":true,"origin":"","legend":"","description":"","filename":"Article6.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7973447/v1_covered_994a51bd-6c74-4967-8643-3a44fe4f3611.pdf"},{"id":94717294,"identity":"a844af3e-845f-4d3d-9fb1-7b349d8f9e72","added_by":"auto","created_at":"2025-10-30 04:00:21","extension":"docx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":23042,"visible":true,"origin":"","legend":"\u003cp\u003eModel Python codes\u003c/p\u003e","description":"","filename":"PythonCode.docx","url":"https://assets-eu.researchsquare.com/files/rs-7973447/v1/04cd017382a8f6b232239382.docx"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003eGhanaian Inflation and Income Dynamics: Evidence on Volatility and Neutrality Thresholds\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"National Institute of Statistics and Applied Economics","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Inflation volatility, statistical modelling, monetary transmission, threshold modeling, Ghanaian economy","lastPublishedDoi":"10.21203/rs.3.rs-7973447/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7973447/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe paper explains how inflation, monetary policy, and fiscal interventions interacted in Ghana from 2005 to 2014. A discrete-time macroeconomic model with money supply, taxation, household consumption, GDP per capita, and price adjustments as variables has been developed. The paper uses FIGARCH and GARCH models to investigate the volatility of inflation to decide if it has long-memory properties. The empirical findings show that the fractional differencing parameter $d = 0$ (Hurst exponent $H = 0.5$), which means that there is no persistent long-range dependence in inflation volatility. Hence, a standard GARCH(1,1) model is sufficient to describe short-term volatility dynamics, and shocks to conditional variance occur immediately but subside rapidly. Besides that, the research determines a monetary-fiscal neutrality threshold, which highlights the equilibrium where income growth balances the inflationary pressures; this threshold is assessed macroeconomically into general prices and compared to actual general prices to evaluate its validity. The results indicate that inflation in Ghana during this period is mainly of short-memory nature, thus reaffirming the role of short-term monetary and fiscal operations in price stabilization, and confirming the successful validation of the macroeconomic neutrality threshold linking income growth and price stability.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJEL Classification\u003c/strong\u003e. 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