Sources of Business Cycles in a Low Income Country

We examine the role of global and domestic shocks in driving macroeconomic fluctuations for G hana. We are able to study the impact of exogenous shocks, including productivity, credit supply and commodity price shocks. We identify the shocks using a combination of sign and recursive restrictions within B ayesian vector autoregressive models. As a benchmark we provide results for S outh A frica to document the difference between two economies with similar structures but at different stages of development. We find that global shocks play a more dominant role in S outh A frica than in G hana. These shocks operate through three channels: trade, credit and commodity prices.