Financial market efficiency under the interest rate reform policy in Ghana: Theory, model and empirical analysis

Abstract

This paper sets out to evaluate the level of financial market efficiency under the interest rate reform policy (interest rate liberalization policy) in Ghana from 1988 to 2004. In line with this objective, a model has been specified and estimated. The results of the study revealed that the interest rate liberalisation policy has not yet succeeded in correcting the financial market inefficiency or distortion in the country between 1988 and 2004, even though there has been a fair improvement as compared to the pre-reform period. There is therefore the need to intensify efforts to significantly reduce the inflation rate for a corresponding reduction in the interest rate, in order to minimize or eliminate the level of financial market inefficiency, which is necessary for efficient mobilization and allocation of financial resources in the country.