An examination of the relationship between exchange rate and key macroeconomic variables in Ghana: An Autoregressive Distributed Lag (ARDL) approach
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Date
August, 2015
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Abstract
The study examines the influence of key macroeconomic variables on the exchange rate of Ghana Cedi (GH¢) against the US Dollar ($). The macroeconomic variables were money supply, interest rate, and inflation. Monthly data from May, 2000 to May, 2014 were used for the study. Using Autoregressive Distributed Lag (ARDL) approach to co-integration, the results show that there is co-integrating relationship between the variables, indicating a long-run equilibrium relationship among them. The study has established that the past exchange rate (lag of exchange rate) significantly affect current exchange rate. The study has also found a causal relationship between broad money supply (M2+) and current exchange rate. The study recommends among other things that Government and policy makers must pay careful attention to macroeconomic fundamentals due to their significant short and long-term effect on the countries exchange rate stability. Also, government must try to manage currency speculation since it has significant impact on the exchange rate of the country.
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A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Master of Business Administration (Finance Option),