Abstract:
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector
credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the
private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run
stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt
long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect
on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar
adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to
their last period‟s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can
be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds
great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to
the private sector because of its strategic importance in creating and generating growth of the economy.
