International reserves, external debt maturity and exchange rate volatility in Ghana

Abstract

This study investigates the effect of build-up of international reserves on external debt maturity structure and exchange rate volatility in Ghana. It tests the hypotheses that the build-up of international reserves changes the maturity structure of external debt towards more long term obligation and strengthens stability in exchange rate. It also tests the hypothesis that build-up of international reserves and higher shares of long term external debt interact with each other to reinforce stability in exchange rate. An ARDL model was used to analyze data obtained from the World Bank, the International Monetary Fund and Bank of Ghana databases. The study establishes that the build-up of international reserves reduces exchange rate volatility and also interacts with higher shares of long term external debt to reinforce stability in exchange rate.