| Ghana's desire to achieve sustainable economic growth with relatively stable price level pursue both monetary and fiscal policies that could lead to macroeconomic. This study examines the effects of fiscal and monetary policy on economic growth and determine the level of convergence of growth for Ghana using structural equation modeling (SEM) using time series data from 2008 to 2017. Both short run and long-run results revealed that the ratio of government spending to private investment was statistically significant and it exerted a positive impact on economic growth, an indication that government expenditure is a key channel through which we can achieve sustained economic growth. It was also revealed that real interest rate which is a monetary policy tool have a negative effect on economic growth in Ghana. Impulse response analyses show that any unanticipated increase in government spending converges to its long-run equilibrium. Also, any unanticipated shock in investment diverges from long-run equilibrium.;The impulse response of government spending on investment shows that government spending shocks decreases investment in Ghana, which results in crowding out of investment. The evidence from variance decomposition suggests that the most important variable that influenced economic growth in Ghana is tax revenue and government spending, while the least important variable is interest rate. The results of the Granger-Causality test suggested there is bi-directional causality between economic growth and real interest rate. To achieve higher and sustainable economic growth, government should embark on expansionary fiscal policies. Further, the central bank of Ghana must reduce lending rates so that firms and business sector can borrow at low rates to enhance growth and development of the economy. |
