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© 2022 International Monetary Fund
WP/22/169
IMF Working Paper
Institute for Capacity Development
Quarterly Projection Model for the Bank of Ghana*
Prepared by Philip Abradu-Otoo, Ivy Acquaye, Abubakar Addy, Nana Kwame Akosah, James Attuquaye, Simon Harvey, Shalva Mkhatrishvili, Zakari Mumuni, Valeriu Nalban
Authorized for distribution by Paul Cashin
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: The paper describes the Quarterly Projection Model (QPM) that underlies the Bank of Ghana Forecasting and Policy Analysis System (FPAS). The New Keynesian semi-structural model incorporates the main features of the Ghanaian economy, transmission channels and policy framework, including an inflation targeting central bank and aggregate demand effects of fiscal policy. The shock propagation mechanisms embedded in the calibrated QPM demonstrate its theoretical consistency, while out-of-sample forecasting accuracy validates its empirical robustness. Another important part of the QPM is endogenous policy credibility, which may aggravate policy trade-offs in the model and make it more realistic for developing economies. Historical track record of real time policy analysis and medium-term forecasting conducted with the QPM – as a component of the broader FPAS analytical organization – establishes its critical role in supporting the Bank’s forward-looking monetary policy framework.
| JEL Classification Numbers: | E32, E37, E47, E52 |
| Keywords: | Ghana, Forecasting and Policy Analysis, Quarterly Projection Model, Monetary Policy, Transmission Mechanism |
| Authors’s; E-Mail Addresses: | philip.otoo@bog.gov.gh; ivy.acquaye@bog.gov.gh; abubakar.addy@bog.gov.gh; nana.akosah@bog.gov.gh; james.attuquaye@bog.gov.gh; simon.harvey@bog.gov.gh; shalva.mkhatrishvili@nbg.gov.ge; zakari.mumuni@bog.gov.gh; vnalban@imf.org; |
| JEL Classification Numbers: | E32, E37, E47, E52 |
| Keywords: | Ghana, Forecasting and Policy Analysis, Quarterly Projection Model, Monetary Policy, Transmission Mechanism |
| Authors’s; E-Mail Addresses: | philip.otoo@bog.gov.gh; ivy.acquaye@bog.gov.gh; abubakar.addy@bog.gov.gh; nana.akosah@bog.gov.gh; james.attuquaye@bog.gov.gh; simon.harvey@bog.gov.gh; shalva.mkhatrishvili@nbg.gov.ge; zakari.mumuni@bog.gov.gh; vnalban@imf.org; |
Title Page
WORKING PAPERS
Quarterly Projection Model for the Bank of Ghana
Prepared by Philip Abradu-Otoo, Ivy Acquaye, Abubakar Addy, Nana Kwame Akosah, James Attuquaye, Simon Harvey, Shalva Mkhatrishvili, Zakari Mumuni, Valeriu Nalban1
Contents
I. Introduction
II. Stylized Facts and Model Motivation
III. Model Structure
A. Inflation
B. Aggregate Demand
C. Exchange Rate and UIP
D. Interest Rate and Monetary Policy
E. External Sector and Long-Run Trends
F. Calibration
IV. Model Results
A. Impulse Response Functions
B. Equation Decompositions
C. Out-of-sample Forecasting Accuracy
D. Monetary Policy Credibility Channel in the BOG QPM
E. Simulating Disinflation Scenarios
V. Conclusion
VI. References
The authors comprise Bank of Ghana staff and the IMF team that has led the Technical Assistance (TA) project on developing a Forecasting and Policy Analysis System (FPAS) at the Bank of Ghana (BOG). The TA project has been conducted by ICD since 2019 and financed by the second African Regional Technical Assistance Centre in West Africa (AFRITAC West 2). The authors greatly appreciate the BOG management for their support to the FPAS TA project. The authors are also grateful to Martin Fukac for his earlier contributions to the TA project; to Paul Cashin and Philippe Karam for their feedback; to the IMF African Department Ghana team for their collaboration and support to the FPAS TA project; and to participants at an ICD seminar for their helpful comments. The views expressed in this paper are those of the authors and do not necessarily represent the views of the Bank of Ghana, National Bank of Georgia, IMF, its Executive Board, or IMF management.
The authors comprise Bank of Ghana staff and the IMF team that has led the Technical Assistance (TA) project on developing a Forecasting and Policy Analysis System (FPAS) at the Bank of Ghana (BOG). The TA project has been conducted by the IMF’s Institute for Capacity Development (ICD) since 2019 and financed by the second African Regional Technical Assistance Centre in West Africa (AFRITAC West 2). The authors greatly appreciate the BOG management for their support to the FPAS TA project. The authors are also grateful to Martin Fukac for his earlier contributions to the TA project; to Paul Cashin and Philippe Karam for their feedback; to the IMF’s African Department Ghana team for their collaboration and support to the FPAS TA project; and to participants at an ICD seminar for their helpful comments. The views expressed in this paper are those of the authors and do not necessarily represent the views of the Bank of Ghana, National Bank of Georgia, IMF, its Executive Board, or IMF management.