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Real exchange rate volatility and domestic consumption in Ghana

Author

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  • Bernard Njindan Iyke
  • Sin-Yu Ho

Abstract

Purpose - This paper aims to examine the effects of exchange rate volatility on consumption by focusing on a small open sub-Saharan Africa (SSA) country, Ghana, which has experienced exchange rate volatility frequently. Design/methodology/approach - The authors used annual data covering the period 1980-2015, the annualised variance of the real exchange rate as a measure of exchange rate volatility and a technique that is able to separate short-run effects from long-run effects. Findings - The authors found that exchange rate volatility has negative effects on domestic consumption in the short run, which is passed on as negative long-run effects. This conclusion is unaffected by an alternative measure of exchange rate volatility and the choice of lag restrictions. Research limitations/implications - The authors’ finding suggests that policymakers should seek to reduce or prevent exchange rate volatility by pursuing various policies including limiting foreign currency transactions within the country and promoting quality exports. Originality/value - The extant studies have examined the effects of exchange rate volatility on consumption by considering countries in regions other than SSA. This paper focuses on a small open SSA country which has experienced exchange rate volatility frequently. Unlike most studies, this paper differentiates short-run effects from long-run effects.

Suggested Citation

  • Bernard Njindan Iyke & Sin-Yu Ho, 2018. "Real exchange rate volatility and domestic consumption in Ghana," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 19(5), pages 513-523, June.
    • Handle: RePEc:eme:jrfpps:jrf-01-2017-0010
    DOI: 10.1108/JRF-01-2017-0010
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    More about this item

    Keywords

    Ghana; Exchange rate volatility; Domestic consumption; E31; F31; C22;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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