Assessing the determinants of exchange rate behaviour in Ghana

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Date
May, 2016
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Abstract
The study sought to investigate the determinants of exchange rate behavior in the economy by specifically assessing the short run and long run impact of inflation, interest rate and real GDP on nominal exchange rate, using the Autoregressive Distributed Lag (ARDL) model on time series dataset on quarterly series from 1970Q1 to 2012Q4. The study found that inflation did not have any significant impact on the behavior of the exchange rate in both the short run and long run. Money supply and the real GDP on the other hand, were significant in the behavior of exchange rate both in the long run and short run. Interest rate was significant in the short run but not in the long run. Whiles interest rate was significant just in the short term but did not matter in the long run. The study found that an increase in money supply causes appreciation of the cedi in the short term but gradually lead to depreciation in the long run. Whiles the real GDP causes depreciation in the short run but eventually causes appreciation of the cedi in the long run. Money supply becomes a crucial target in the long run but real GDP is crucial in the short run when it comes to stabilization of the domestic currency. The study also found that, the change in the exchange rate regime from the fixed to the floating did not have significant impact on the trends in the domestic currency.
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A thesis presented to the Department of Economics, College of Humanities and Social Sciences in partial fulfillment of the requirement for the degree of Master of Science in Economics,
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