TITLE:
The Interaction between Public Sector Wage, Inflation and Exchange Rate Volatility in Ghana
AUTHORS:
Grace Ofori-Abebrese, Robert Becker Pickson, George Kwesi Walanyo Azumah
KEYWORDS:
Public Sector Wage Bill, Inflation, Exchange Rate, Government Fiscal Deficit, Money Supply
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.3,
March
27,
2017
ABSTRACT: Continuous depreciation
of the cedi has been in the orbit of concern of policy makers for time
immemorial. This is because, in spite of many policy actions to restore the
continuous depreciation of the cedi amidst wage hikes and inflation, the
efforts of policy makers seem to thwart in vain. The ARDL method was
empirically used to determine whether the rising public sector wage bill and inflation
have any impact on the value of the cedi over the period 1986 to 2014. The
study discovered that inflation, money supply, interest rate and public wage
bill have significant impact on exchange rate in the Ghanaian economy. The
outcome of this study postulated that exchange rate determination in Ghana is
also a fiscal phenomenon in spite of the significant and domineering role
played by monetary expansion. Based on this information, the paper proposed
that equal attention must be accorded both fiscal and monetary policy in
exchange rate stabilization. It, therefore, suggested that there must be a
purely independent central bank; devoid of political appointments and
interference to carry out its mandate with free hands. An independent
non-political fiscal body like the monetary policy committee under Bank of
Ghana must also be established under the same body independent of the Ministry
of Finance to ensure wage sustainability through the negotiation of public
sector wage adjustment subject to budgetary constraints.