The role of institutions in shaping the effect of monetary policy on ecological footprint in Ghana

The growing environmental challenges in Ghana underscore the need to understand how macroeconomic policies influence ecological sustainability. This study examines the relationship between monetary policy and ecological footprint (EFP), and further explores the moderating role of institutional quality in the monetary policy–ecological footprint nexus in Ghana. Guided by an explanatory design and a quantitative approach, the study employed the classical autoregressive distributed lag (ARDL) model to analyze 80 quarterly time series observations covering the period 2005–2024. The empirical results revealed a statistically significant inverse relationship between monetary policy and ecological footprint, indicating that effective monetary tightening helps mitigate environmental degradation by discouraging excessive resource utilization and unsustainable production. Conversely, institutional quality demonstrated a significant positive moderating effect in the monetary policy–ecological footprint nexus, suggesting that stronger governance frameworks amplify the environmental benefits of sound monetary management. The study concludes that well-implemented monetary policy can serve as an indirect environmental tool, complementing fiscal and regulatory measures toward sustainable development. The study extends Ecological Modernization Theory by empirically confirming that monetary policy effectiveness in reducing ecological footprint is conditional on institutional capacity. Again, it advances Institutional Quality Theory by demonstrating institutions’ moderating, not just mediating, role in environmental-monetary policy transmission. On the policy front, the Bank of Ghana ought to incorporate the measures of environmental sustainability in its monetary policy plan. Also, the Ghanaian government ought to employ anti-corruption strategies, regulatory interventions, and digital surveillance tools to ensure that environmental and financial policies are adhered to. Finally, the study recommends enhanced coordination among the Bank of Ghana, Environmental Protection Agency (EPA), and Ministry of Finance to ensure that monetary policy decisions promote green financing and long-term ecological resilience.