The Impact of Macroeconomic Variables on Gross Domestic Product: Empirical Evidence from Ghana

Macroeconomic variables such as interest rates, inflation and exchange rates play a vital role in the economic performance of any country. The main objective of this paper was to investigate the effect that changes in the inflation and interest rates have on the Gross Domestic Product (GDP) in Ghana over a period of thirty one (31) years from 1980-2010. Data were collected from Bank of Ghana publications and bulletins, Ghana Statistical Service, the Institute of Statistical, Social and Economic Research (ISSER). The paper employed multiple linear regressions to establish that there exists a fairly strong positive correlation between GDP, Interest rate and Inflation, but Inflation and Interest rate could only explain movement in GDP by only 44 percent. The paper further established that, there existed positive relationship between inflation and GDP and interest rate is negative. It is recommended among others that the Government together with the Bank of Ghana should develop and pursue prudent monetary policies that would aim at reducing and stabilizing both the micro and macroeconomic indicators such as inflation targeting, interest rate, so as to boast the growth of the economy.