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This paper scrutinizes the rationale for the adoption of inflation targeting(IT) by Bank of Ghana in 2002. In this case, we determine the stability orotherwise of the relationship between money supply and inflation in Ghana overthe period 1970M1-2016M3 using battery of econometric methods. The empiricalresults show an unstable link between inflation and monetary growth in Ghana,while the final state coefficient of inflation elasticity to money growth ispositive but statistically insignificant. We find that inflation elasticity tomonetary growth has continued to decline since the 1970s, showing a waningimpact of money growth on inflation in Ghana. Notably, there is also evidenceof negative inflation elasticity to monetary growth between 2001 and 2004,lending support to the adoption of IT framework in Ghana in 2002. We emphasizedthat the unprecedented 31-months of single-digit inflation (June 2010-December2012), despite the observed inflationary shocks in 2010 and 2012, reinforcesthe immense contribution of the IT framework in anchoring inflationexpectations, with better inflation outcomes and inflation variability inGhana. The paper therefore recommends the continuous pursuance andstrengthening of the IT framework in Ghana, as it embodies a more eclecticapproach to policy formulation and implementation.

Justifying the Adoption and Relevance of Inflation Targeting Framework: A Time-Varying Evidence from Ghana