Empirical analysis of Exchange rate in Ghana

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MAY 2016
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The inherent aim of this study was to investigate the factors that influence exchange rate movements in Ghana. The frequent exchange rate volatility poses a serious challenge to economic agents in their decision making process. The study covers the period of thirtyfour years (1980 – 2013). Both primary and secondary data were used in arriving at the findings of the study. Qualitative and quantitative analysis were done to serve as means of presenting the findings of the research work. An Augmented Dickey-Fuller unit root test was conducted after which the ARDL cointegration analysis was performed. Other approaches adopted were the Granger causality test, impulse response, and variance decomposition. The findings indicates that imports, public debt, nominal GDP, and inflation affect exchange rate movement in the Ghanaian economy. Also, exchange rate depreciation was found to have significant impacts on the economy as it can trigger inflation, worsening the external debt position of government, and deteriorating the nation’s trade balance. As ways of tackling the depreciation of the Cedi and mitigating the attendant adverse repercussion on the Ghanaian economy, creation of imports substitutes and appropriate utilization of borrowed funds by government appear to be vibrant measures.
A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the award of Master of Science (Economics),