“Determinants of exchange rate in Ghana”
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Date
2016-05
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KNUST
Abstract
ABSTRACT
The purpose of this work was to find out the determinants of the Ghana cedi
performance against international currencies by using data covering the period 1985-
2014. The Ghana Cedi in recent times has suffered substantial loss of value against
the major trading foreign currencies especially the US dollar which the researcher
uses as the proxy in this work. The Cedi depreciation is believed to be partly
responsible for a rising inflation and interest rate in Ghana and imposes economic
challenges to the country. The researcher investigates the macroeconomic variables
that influence the cedi exchange rate. Secondary data was employed for analysis and
presentation of the issues. The use of Eviews and the Vector Auto-Regressive (VAR)
model have been employed in this work. Also used are the Akaike Information
Criterion and Final Prediction Error to estimate the VAR due to the sample size of
less than 60, the Augmented Dickey- Fuller(ADF) unit root test, Johansen
cointegration test, Granger causality as well as variance decomposition. Government
borrowing, consumer price index, and domestic interest rate were found as
statistically significant, influencing the performance of the Cedi against the US
Dollar in the long run. Exports and imports were revealed to have no such effect on
exchange rate movements. Policy measures recommended to arrest the situation
includes proper and effective coordination between monetary and fiscal authorities to
reduce revenue leakages. Creation of good investment climate and development of
domestic bond market are also recommended to reduce pressure on the local
currency and put it in a stable position.
Description
Thesis submitted to the Department of Economics of the College of Social Sciences and Humanities, Kwame Nkrumah University of Science and Technology, in
Partial fulfillment of the requirement for the award of the Master of Science degree in Economics.