Abstract:
Examining the effect of Ghana's macroprudential regulations and monetary policy on the nation's financial and price stability is the main objective of this study. It specifically looks at how these policies interact and what effect they have on Ghana's prices and financial stability. This is done using the Autoregressive Distributed Lag (ARDL) model to evaluate quarterly data from 2013 Q1 to 2022 Q1 provided by the Bank of Ghana (BoG), Ghana Statistical Service (GSS), and World Development Indicators (WDIs). The results show that macro-level prudential regulations have no long-term association with financial stability, but they have a favourable and significant short-term effect. Furthermore, the existence of monetary policy boosts the short-term effects of macro-level prudential regulations on financial stability but has no significant long-term influence. Additionally, without macro-level prudential regulations, monetary policy has a detrimental, albeit slight, effect on price stability; nevertheless, in their presence, the study finds a notable and statistically significant positive effect in the long-run. The study proposes as a recommendation that Ghana maintain its framework for managing inflation, using measures to control liquidity, borrowing costs, inflationary pressures, and foster stability, including policy rates and macro-level prudential regulations, particularly the primary reserve requirement ratio. Immediate concerns about financial stability can be addressed using a coordinated approach that combines macroprudential regulations and monetary policy, while fine-tuned macro-level prudential regulations should be the principal tool for long-term stability preservation.
