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Asymmetric Dependence Between Exchange Rate And Commodity Prices In Ghana

Author

Listed:
  • CHRISTINA ARCHER

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast, Ghana)

  • PETERSON OWUSU JUNIOR

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast, Ghana)

  • ANOKYE M. ADAM

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast, Ghana)

  • EMMANUEL ASAFO-ADJEI

    (Department of Finance, School of Business, University of Cape Coast, Cape Coast, Ghana)

  • STEPHEN BAFFOE

    (��Directorate of Finance, CoDE, University of Cape Coast, Cape Coast, Ghana)

Abstract

An increase in globalization and financial integration has induced countries to depend on each other to survive. This has facilitated trade and investments among economies across the globe. It is expected that countries’ international economic activities would contribute to the rate of exchange between the countries. However, uncertainties may alter the dynamics of exchange rate movements, thereby minimizing the contribution of its economic activities at various market conditions. In this regard, we examine the influence of variations in prices of commodities on nominal exchange rate in Ghana. Hence, we employ quantile regression with monthly data spanning from September 2007 to December 2020 for the variables — nominal exchange rate, cocoa, gold and Brent crude oil prices. We find a significant connection among the variables for most quantiles. Also, the study reveals that an upsurge in the price of crude oil corresponds to an appreciation of the Ghana Cedi during turbulent conditions. Conversely, cocoa price tends to appreciate the Ghana Cedi for both normal and extreme market conditions. We recommend that for the country to enjoy favorable exchange rate at all market conditions, there is a need for the producers of these exported commodities to be incentivized by the government in the form of subsidies, new technological equipment and education in order for the producers to increase their efficiency and add value to these commodities while effective inflation targeting policies are deployed. Implications for the study are further provided.

Suggested Citation

  • Christina Archer & Peterson Owusu Junior & Anokye M. Adam & Emmanuel Asafo-Adjei & Stephen Baffoe, 2022. "Asymmetric Dependence Between Exchange Rate And Commodity Prices In Ghana," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 17(02), pages 1-26, June.
    • Handle: RePEc:wsi:afexxx:v:17:y:2022:i:02:n:s2010495222500129
    DOI: 10.1142/S2010495222500129
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    Cited by:

    1. Kyei, Collins Baffour & Cantah, William Godfred & Junior Owusu, Peterson, 2023. "Effect of commodity prices on financial soundness; insight from adaptive market hypothesis in the Ghanaian setting," Resources Policy, Elsevier, vol. 86(PA).
    2. Thobekile Qabhobho, 2023. "Assessing the Asymmetric Effect of Local Realized Exchange Rate Volatility and Implied Volatilities in Energy Market on Exchange Rate Returns in BRICS," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 231-239, March.

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