An empirical investigation into the impact of real exchange rate misalignment on economic performance: The case of Ghana.
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Date
2016-10
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KNUST
Abstract
Misalignment of the real exchange rate (RER), whereby the actual RER deviates from its equilibrium value, has important implications on a country’s economic performance. This study, thus, investigates the impact of a misalignment in the real exchange rate on the economic performance in Ghana. Annual time series data covering the period from 1980 to 2013 were sourced from the World Bank development indicator CD-room and used in this study. Econometric procedures such as unit root testing, co-integration and the vector error correction models were followed. The single equation method, which is a model based approach for the estimation of the equilibrium exchange rate and hence the misalignment series was adopted for the study. The study reveals that the equilibrium exchange rate is determined by fundamental factors such as productivity, government expenditure, terms of trade, net foreign income and real relative interest rate. The study also shows a substantial misalignment of the real exchange rate over the study period. The real exchange rate was overvalued during the period from 1981 to 1983. The exchange rate was however undervalued over the remainder of the study period. Overall the study indicates a negative impact of the misalignment series on economic performance in Ghana both in the longrun and the short run. It is therefore encouraged, that government’s economic policy strategies be focused on strengthening the economic fundamentals such as productivity, terms of trade, better trade policies, attracting more inflows of foreign income etc. with sustained macroeconomic stability and growth being at the center.
Description
A Thesis Submitted To The Department Of Accounting And Finance In Partialfulfillment Of The Requirements For The Award Of A Master Of Philosophy Degree In Finance.