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The Economics and Finance Letters

June 2020, Volume 7, 1, pp 1-12

An Agnostic Analysis of Exchange Rate Movement in Ghana

Shuffield Seyram Asafo

,

Adelajda Matuka

Shuffield Seyram Asafo 1 Adelajda Matuka 1 ,
;

  1. PhD Student, University of Macerata, Department of Economics and Law, Macerata, Italy. 1

Pages: 1-12

DOI: 10.18488/journal.29.2020.71.1.12

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Article History:

Received: 02 October, 2019
Revised: 05 November, 2019
Accepted: 12 December, 2019
Published: 09 January, 2020


Abstract:

Based on quarterly data for the period 2006:3-2018:4, the effect of exchange movement on a set of price indices in Ghana is examined via a Bayesian Vector Autoregressive model. Using normal inverted-Wishart priors, the posterior estimates are generated by Markov Chain Monte Carlo draws via a sign restriction algorithm. Findings showed that the response of consumer prices (CPI), producer prices (PPI) and non-food prices (NFP) to exchange rate shocks is low and incomplete. Furthermore, the forecast error variance decomposition (FEVD) indicated that CPI is most responsive to exchange rate impulses than NFP and PPI. In addition, inflationary pressures in Ghana emanated from exchange rate sources other than monetary sources. The paper recommends “pricing in local currency” as a deliberate policy to insulate domestic prices from volatilities in the exchange rate.
Contribution/ Originality
This study used a new estimation methodology to examine the effect of exchange rate dynamics on prices in Ghana.

Keywords:

Bayesian analysis, Inflation, Financial markets and macroeconomy, Money supply exchange rate, Ghana.

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Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Special gratitude goes to fellow researchers who made their input in diverse ways to make this paper a success. All other errors remained the author’s responsibility.

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