Exchange Rate In Ghana Research Articles

Forecasting the future: applying Bayesian model averaging for exchange rates drivers in Ghana

ABSTRACT Exchange rate forecasts and stability have been a challenge for developing economies. This study analyses the possible exchange rate predictors in Ghana that are needed for policymaking. We perform an out-of-sample exchange rate forecast for the Ghana Cedis (GHS) per the United States dollar (USD) and the Euro (EUR) and the nominal effective exchange rate (NEER) using the Bayesian model averaging for 1, 3 and 6-month horizons. We observed that domestic predictors largely drive the exchange rates in Ghana with the stock market index and fiscal operations exhibiting the strongest predictive power followed by the Taylor rule, and the real economic sector. Moreover, there is an international spillover from the US economy to Ghana’s exchange rate. Finally, we noticed that forecast accuracy improved at the 3-month-ahead.

Nexus between commodities and banking sector financial soundness: The role of general macroeconomic setting in Ghana

The level of causation and interdependencies among three commodities (cocoa, gold, and Brent crude oil), five banking sector performance indicators (Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Equity (ROE), Return on Assets (ROA) and Core Liquid assets to total assets (CLATA)), and three general macroeconomic indicators (Inflation, Exchange rate and Global Economic Policy Uncertainty) are explored in this study. As a result, the wavelet techniques are employed to investigate time-frequency and frequency-dependent nexus in the Ghanaian context. In terms of time-frequency, a mix of negative and positive bi-causality among commodities, banking sector performance indicators, and macroeconomic indicators are found. Outcomes from the wavelet multipleprovide that these variables are highly integrated, with the exchange rate leading in the long-run. Hence, implying that exchange rate in Ghana has a high susceptibility to shocks before the other variables in the study. We advocate Government of Ghana and policy-makers should fine-tune policies that take into account the impact on other economic factors. Policies should be initiated to minimise fluctuations in the exchange rate. To limit the adverse impact of inflation and GEPU, it is required that effective and efficient country-level policies geared towards stability be initiated to resuscitate the economy.

Effect of exchange rate on inflation in the inflation targeting framework: Is the threshold level relevant?

The continuous depreciation of the exchange rate in Ghana has raised concern about its effect on inflation and the economy at large. This paper examines the threshold effect of exchange rate pass-through (ERPT) on inflation using a monthly data from January 2002 to December 2018. The relevance of the exchange rate threshold in the Taylor rule has also been examined. Using the threshold autoregressive (TAR) method, the results of the ERPT model revealed that exchange rate depreciation beyond a monthly threshold of 0.70% has a significant positive pass-through effect on inflation, which gives credence to the relevance of threshold level. The results of the monetary policy rule model also showed that regardless of the threshold level of 0.51%, the exchange rate significantly influences the monetary policy rate positively. Therefore, paying proper attention to the exchange rate in the policy rule despite the threshold (0.51%) will prevent the exchange rate depreciation from exceeding the optimal level (0.70%) and hence no ERPT on inflation. Based on these findings, it is suggested that monetary regulators should view the exchange rate at any level essential to adjust the policy rate.

The dynamic interactions of economic growth, foreign direct investment, and exchange rates in Ghana

The dynamic interactions of economic growth, foreign direct investment, and exchange rates in Ghana

English

This research examines the impact of import substitution policy on the trade balance and exchange rate in Ghana by employing the macroeconomic variables – inflation rate and interest rate. For a robustness check, the policy is analyzed using the augmented trade balance and magnitude of import substitution approaches. The study utilizes quarterly data from 1990Q1 to 2021Q1 and applies the Johansen cointegration test and vector error correction model to estimate the dynamics of the policy impact. The results show that the import substitution policy boosts the capacity of domestic production and improves the trade balance. Also, the study reveals that both the augmented trade balance and magnitude of import substitution and international reserves have a symmetric negative impact on the exchange rate at a statistically significant level of 1%, ceteris paribus. This implies that the implementation of the import substitution policy would ensure the appreciation or stabilization of the domestic currency value in Ghana without depleting the international reserves in the long-run.   Key words: Exchange rate; trade balance; international reserves; inflation rate; interest rate; augmented trade balance; magnitude of import substitution.

Macroeconomic risk factors and REITs returns predictability in African markets: Evidence from a new approach

This study examines the predictability of REITs returns considering the role of macroeconomic risk predictors for three emerging African REITs markets, namely Ghana, Nigeria and South Africa. To account for the inherent statistical properties of persistence, endogeneity, autocorrelation and conditional heteroscedasticity, we apply the Feasible Quasi Generalized Least Squares (FQGLS) estimator. In addition, the role of asymmetries is considered. Our findings show the heterogeneous performance of the risk factors. All the risk predictors matter in predicting REITs returns in a non-linear fashion in Nigeria, while asymmetries appear to matter only for both interest rate and exchange rate in Ghana, and only interest rate in South Africa. These results suggest that the predictors are important forecast factors for the REITs market. Taking a step further to examine and compare their forecast performance with the traditional model, we find that the macroeconomic risk factors-based predictive model outperforms the traditional ARFIMA model in several cases in the countries, especially Nigeria. Robustness is provided for these results through the use of different sample periods and forecast horizons. Notable policy implications for investors and portfolio managers can therefore be derived from these findings.

ASYMMETRIC DEPENDENCE BETWEEN EXCHANGE RATE AND COMMODITY PRICES IN GHANA

An increase in globalization and financial integration has induced countries to depend on each other to survive. This has facilitated trade and investments among economies across the globe. It is expected that countries’ international economic activities would contribute to the rate of exchange between the countries. However, uncertainties may alter the dynamics of exchange rate movements, thereby minimizing the contribution of its economic activities at various market conditions. In this regard, we examine the influence of variations in prices of commodities on nominal exchange rate in Ghana. Hence, we employ quantile regression with monthly data spanning from September 2007 to December 2020 for the variables — nominal exchange rate, cocoa, gold and Brent crude oil prices. We find a significant connection among the variables for most quantiles. Also, the study reveals that an upsurge in the price of crude oil corresponds to an appreciation of the Ghana Cedi during turbulent conditions. Conversely, cocoa price tends to appreciate the Ghana Cedi for both normal and extreme market conditions. We recommend that for the country to enjoy favorable exchange rate at all market conditions, there is a need for the producers of these exported commodities to be incentivized by the government in the form of subsidies, new technological equipment and education in order for the producers to increase their efficiency and add value to these commodities while effective inflation targeting policies are deployed. Implications for the study are further provided.

An Empirical Assessment of the Nexus between Sectoral Structure, Inflation, Exchange Rate and Economic Growth in Ghana

The study examined the relationship between inflation and exchange rates in Ghana, the sectoral structure of the economy of Ghana and also explored how this structure influences economic growth when inflation and exchange rates are under consideration. The study gathered data over the sampled period of 1980- to 2019 and used appropriate techniques to test for unit roots and co-integration in the data. After applying the appropriate regression techniques results obtained, it was identified that there was a negative relationship between inflation and exchange rates in Ghana from 1980- to 2019. Also, results obtained from the descriptive analysis and correlation results showed that the current structure of the economy was dominated by services value-added, followed by industry value added and then agriculture value-added. Finally, results showed different impacts of interactions between inflation and sectoral structure on economic growth in Ghana, as compared to the interactions between exchange rates and sectoral structure in Ghana. The study concluded that the structure of the economy of Ghana has also evolved—from one dominated by agriculture value added to one that is now dominated by services value-added. This change in the structure has resulted from changes in economic policies and the adoption of liberalization policies that have allowed for more trade and free markets. It was recommended that the real issue for policymakers should not be how to control inflation or the exchange rate. Instead, policymakers should focus on how to structure the economy of Ghana to take advantage of the dynamics of the global marketplace and reduce the influence of the exchange rate on the economy of Ghana. Also, there is a need for more public education on the importance of consuming and patronizing locally manufactured goods and services.

Artificial Neural Network Model for Predicting Exchange Rate in Ghana: A Case of GHS/USD

In today's global economy, accuracy in predicting the foreign exchange rate or at least predicting the trend correctly is of crucial importance for any future investment and this is mostly achieved by the use of computational intelligence-based techniques as explored in this paper. The aim of this study was to develop an Artificial Neural Network (ANN) Model for predicting the GHS/USD with inflation, nominal growth, monetary policy, interest rate, trade balance, gross international reserve, foreign currency deposit, broad money as the major indicators for Exchange rate. Three different ANN models which are Back Propagation Neural Network (BPNN), Radial Basis Function Neural Network (RBFNN) and Generalized Regression Neural Network (GRNN) were developed and the results were measured by the Performance Index (PI), Mean Absolute Error (MAE), Root Mean Square Error (RMSE) and Mean Absolute Percentage Error (MAPE). After extensive training, validation and testing of the data, the BPNN model was seen to be the adequate model for predicting the exchange rate with MAE of 0.28973, RMSE of 0.32274, PI of 0.10416 and MAPE of 7% and a prediction accuracy (R²) of 0.8460 as against the RBFNN which have MAE of 0.37265, RMSE of 0.48472, PI of 0.2349, MAPE of 8.52% and an R² of 0.3744, and the GRNN with MAE of 1.06482, RMSE of 1.15444, PI of 1.33274, MAPE of 24.07% and an R² of 0.2987.

Frozen chicken import, domestic chicken production, and real exchange rates in Ghana: A trivariate causality analysis

Frozen chicken import, domestic chicken production, and real exchange rates in Ghana: A trivariate causality analysis

English

The Ghanaian Cedi has recently experienced persistent depreciation against its major trading partners. This paper investigates the contribution of inflation and monetary policy in this persistent depreciation. The paper makes use of the Autoregressive Distributed Lag (ARDL) and Bounds test of cointegration and the Toda and Yamamoto (1995) Augmented Granger Causality test to determine the long and short-run dynamics of the impact of monetary policy and inflation on exchange rates in Ghana, using data ranging from 1970 to 2017. The paper finds a short-run depreciation effect of contractionary monetary policy on the exchange rate, reflecting the exchange rate puzzle. The long-run results however show an appreciating effect. Inflation is also found to depreciate the currency both in the short and long-run. The causality tests also reveal a bi-directional relationship between the exchange rate and the inflation rate, while a unidirectional causal relationship exists between monetary policy and the exchange rate. The paper recommends that inflation stabilization policies should be prioritized in Ghana, as a means to curb the rising exchange rates. Improvement in terms of trade through export value promotion should also be given the needed attention as this is found to appreciate the currency in the long-run.   Key words: Exchange rate, inflation, money supply, Autoregressive Distributed Lag (ARDL), cointegration, Ghana.

The effect of crude oil price shocks on macroeconomic stability in Ghana

AbstractThe paper studies the effects of underlying shocks of crude oil price movements on the stability of macroeconomic aggregates in Ghana. We develop a structural vector autoregressive to disentangle the sources that have driven shocks in crude oil market and estimate the effects of the identified shocks on macroeconomic aggregates and on three bilateral exchange rates in Ghana. In addition, we investigate the extent of transmission of the identified shocks on food and non‐food price levels. The findings show that shocks by oil supply and demand‐specific have a significant effect on real GDP. Further, the identified shocks have a weighty effect on the Ghana/Euro bilateral exchange rate. The findings also suggest that all the identified structural shocks have significant effects on food and non‐food inflation. This implies that oil market shocks are detrimental to food and non‐food inflation in Ghana.

Modelling the Dependency between Inflation and Exchange Rate Using Copula

In this paper, we propose a copula approach in measuring the dependency between inflation and exchange rate. In unveiling this dependency, we first estimated the best GARCH model for the two variables. Then, we derived the marginal distributions of the standardised residuals from the GARCH. The Laplace and generalised t distributions best modelled the residuals of the GARCH(1,1) models, respectively, for inflation and exchange rate. These marginals were then used to transform the standardised residuals into uniform random variables on a unit interval [0, 1] for estimating the copulas. Our results show that the dependency between inflation and exchange rate in Ghana is approximately 7%.

Assessing the Impact of Interest Rate on Foreign Exchange Rate in Ghana

Foreign exchange rates determine the strength of a nation’s currency against other nation’s currency. Determination of foreign exchange rates in Ghana is therefore, of immense importance since the livelihood of many people in the country is tied to the performance of the local currency against the foreign currencies. Data from books and journals were used as the basis for the research; the research result was then compared to the work of earlier writers to ascertain the conformity or otherwise of the Ghanaian situation. The research involved comparing the percentage changes in interest rates of commercial banks in Ghana to the percentage changes in exchange rates for the period 2008 to 2018 to ascertain the relationship between the two variables. Quantitative research design was used for the work. The researcher determined the mean and standard deviation of the distribution and computed the coefficient of correlation for the variables and in addition the regression analysis. The coefficient of correlation was -0.5 and the gradient of the regression line was also -.05. The research showed that interest rates were strongly negatively related to the exchange rates in Ghana for the period 2008 to 2018. This explained why exchange rates in Ghana kept falling while interest rates rose continuously which is contrary to postulates that indicate, a rise in interest rates results in rise in exchange rates. The researcher noted that the great disparity between the lending rate and deposit rate in Ghana is a contributing factor to this anomaly.

The effect of macroeconomic variables on exchange rate: Evidence from Ghana

The study examined the effect of macroeconomic variables on exchange rate in Ghana using a multivariate modeling technique of the Vector Autoregression (VAR) and focusing on impact of broad money supply (M2), lending rate, inflation and real GDP on exchange rate, for 76 quarterly observations period of 2000–2019, in Ghana and to examine their effectiveness in managing exchange rate in Ghana. The study used only secondary sources of data from Bank of Ghana, World Development Indicators and Ghana Statistical Service. It was found that, real GDP granger causes exchange rate in Ghana. However, inflation, money supply and lending rate do not granger cause exchange rate in Ghana but they affect exchange rate indirectly. It was recommended that a sound exchange rate policy should take into account some considerations. The bank of Ghana should try to reduce the lending rate and money supply in order to lower inflation to create rooms for more investors to produce more to increase the GDP produced in the country, in order to depreciate the foreign currency.

Interest Rate and Exchange Rate Volatility Spillovers: Multiscale Perspective of Monetary Policy Transmission in Ghana

Abstract Ghana’s economy is characterised by acute exchange rate volatility alongside persistent and high consumer inflation. This places the economy among the sub-Saharan African countries with the highest inflation over the years. Therefore, we explore in-sample and out-of-sample macro-volatility spillovers to determine the effectiveness of monetary policy and also ascertain the relevance of the exchange rate in Ghana’s interest rate setting at both time and multiscale domains. The study reveals scale-dependent interconnectedness among the macro-variables as their causal linkages broadly intensify at the longer time-scale. We find the real policy rate and the exchange rate to be net transmitters of shocks, while inflation and output gaps are net receivers of shocks from the system. Output gap, however, is the largest net receiver of shocks from the system. The empirical findings generally buttress the prerequisite to uphold exchange rate stability in order to inure general macroeconomic stability in Ghana. In addition, the extent of spillover dynamics from policy interest rate to and from the targeted macro-variables (particularly output gap and inflation) appears to be moderate even in the long run, surmising less effective monetary policy transmission in Ghana.

The Impact of Remittance on the Real Exchange Rate in Ghana

This study examined the impact of remittance on the real exchange rate on Ghana economic performance. The study extracted and used secondary data sources derived from the World Development Indicators (WDI) of the World Bank and Bank of Ghana websites over the period 1970-2016. Trade openness, government public debt, remittance, terms of trade, capital flow were used as independent variable and real exchange rate as the dependent variable. Using the Ordinary Least Squares (OLS) estimator, the study established that government public debt, trade openness and capital flow had significant impact on real exchange rate in Ghana. The study also established that remittance and terms of trade have no significant impact on real exchange rate. The analysis further suggests that, in the long run, a change in the real exchange rate is generally related to movement in economic fundamentals.

The Development and Determinants of Foreign Exchange Market in Ghana

This study seeks to examine the determinants of real exchange rate and its overall performance on Ghanaians economy from 1998 to 2016. The study extracted secondary data from the World Development Indicators (WDI) of the World Bank and Bank of Ghana (BoG) websites respectively. The following variables, namely trade openness, public debt, inflation, terms of trade, political stability were used as an independent variable while real exchange rate was the dependent variable. Simple linear regression model with ordinary least method (OLS), was used to analyze the results. The study revealed that trade openness and GDP are the main factors affecting exchange rate in Ghana. Also, the study finds that public debt, terms of trade, political stability had impact but were not statistically significant on real exchange rate. This study recommends Bank of Ghana put efforts to harmonize monetary policies and then proceed to connect these policies with trade and economic growth policies.

The Transitional Relationship between Economic Growth and Exchange Rate in Ghana: An Empirical Approach

The Transitional Relationship between Economic Growth and Exchange Rate in Ghana: An Empirical Approach

Co-movement of stock exchange indices and exchange rates in Ghana: A wavelet coherence analysis

By means of the Continuous Morlet Wavelet Transform fostering covariance/correlation, lead-lag causal relationship as well as coherency via the wavelets analysis, we explore the two indices on the ...