Sources of Real Exchange Rate Fluctuations in Ghana

Abstract

This study employs the VAR methodology based on quarterly data for Ghana from 1986 to 2011 to analyse the relative importance of different types of shocks for fluctuations in the real effective exchange rate. The study has been able to establish Granger-causal relationships between real effective exchange rate and its fundamentals. Both supply and nominal shocks are important in cushioning the real exchange rates against its appreciation in order to minimize the conventional Dutch Disease effects. Compared to productivity shocks, the results show that consumer price increases contribute significantly to real effective exchange rate appreciations. Policy should therefore be aimed at using additional inflows (such as additional oil revenues from new discovery) in Ghana to boost domestic production of tradable which would maintain higher export volumes. Additional resources should particularly be spent on a variety of investment goods such as machinery, spare parts and raw materials. The implementation of export friendly policies by government should also prove effective in moderating inflationary pressures induced by the additional inflows in Ghana.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 14 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.