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The effect of macroeconomic variables on exchange rate: Evidence from Ghana

Author

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  • Samuel Antwi
  • Mohammed Issah
  • Aboagyewaa Patience
  • Solomon Antwi
  • David McMillan

Abstract

The study examined the effect of macroeconomic variables on exchange rate in Ghana using a multivariate modeling technique of the Vector Autoregression (VAR) and focusing on impact of broad money supply (M2), lending rate, inflation and real GDP on exchange rate, for 76 quarterly observations period of 2000–2019, in Ghana and to examine their effectiveness in managing exchange rate in Ghana. The study used only secondary sources of data from Bank of Ghana, World Development Indicators and Ghana Statistical Service. It was found that, real GDP granger causes exchange rate in Ghana. However, inflation, money supply and lending rate do not granger cause exchange rate in Ghana but they affect exchange rate indirectly. It was recommended that a sound exchange rate policy should take into account some considerations. The bank of Ghana should try to reduce the lending rate and money supply in order to lower inflation to create rooms for more investors to produce more to increase the GDP produced in the country, in order to depreciate the foreign currency.

Suggested Citation

  • Samuel Antwi & Mohammed Issah & Aboagyewaa Patience & Solomon Antwi & David McMillan, 2020. "The effect of macroeconomic variables on exchange rate: Evidence from Ghana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1821483-182, January.
    • Handle: RePEc:taf:oaefxx:v:8:y:2020:i:1:p:1821483
    DOI: 10.1080/23322039.2020.1821483
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    Cited by:

    1. Kartono, Agus & Solekha, Siti & Sumaryada, Tony & Irmansyah,, 2021. "Foreign currency exchange rate prediction using non-linear Schrödinger equations with economic fundamental parameters," Chaos, Solitons & Fractals, Elsevier, vol. 152(C).
    2. Ebenezer Olamide & Andrew Maredza & Kanayo Ogujiuba, 2022. "Monetary Policy, External Shocks and Economic Growth Dynamics in East Africa: An S-VAR Model," Sustainability, MDPI, vol. 14(6), pages 1-19, March.
    3. Kunle Bankole Osinusi & Nurudeen Abiodun Lawal & Sodiq Olaide Bisiriyu, 2022. "Trade Balance, Exchange Rate and Money Supply in Nigeria: Growth Implications and Lesson for African Countries," Management & Economics Research Journal, Faculty of Economics, Commercial and Management Sciences, Ziane Achour University of Djelfa, vol. 4(2), pages 25-44, September.
    4. Abdorasoul Sadeghi & Hussein Marzban & Ali Hussein Samadi & Karim Azarbaiejani & Parviz Rostamzadeh, 2022. "Financial intermediaries and speculation in the foreign exchange market: the role of monetary policy in Iran’s economy," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-26, December.
    5. Davood Pirayesh Neghab & Mucahit Cevik & M. I. M. Wahab, 2023. "Explaining Exchange Rate Forecasts with Macroeconomic Fundamentals Using Interpretive Machine Learning," Papers 2303.16149, arXiv.org.

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