A re-examination of the exchange rate – Interest rate differential relationship in Ghana
This study revisits the relationship between the exchange rate and interest rate differential in Ghana with a focus on the period in which the country adopted the inflation targeting regime. Using macro-data spanning 2002 to 2019 for Ghana and the United States, we show the nonexistence of the relat...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Elsevier
2023-04-01
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| Series: | Heliyon |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2405844023018121 |
| _version_ | 1797837088532463616 |
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| author | Mark Kojo Armah Isaac Kwesi Ofori Francis Kwaw Andoh |
| author_facet | Mark Kojo Armah Isaac Kwesi Ofori Francis Kwaw Andoh |
| author_sort | Mark Kojo Armah |
| collection | DOAJ |
| description | This study revisits the relationship between the exchange rate and interest rate differential in Ghana with a focus on the period in which the country adopted the inflation targeting regime. Using macro-data spanning 2002 to 2019 for Ghana and the United States, we show the nonexistence of the relationship in both the short-run and long-run. Further, we show a positive but slow responsiveness of the exchange rate to interest rate differential shocks from the short-run to the medium term. The long-run results, however, shows a case of a strong and significant response of exchange rate to interest rate differential shocks. We recommend that the Bank of Ghana (BoG) addresses perennial macroeconomic instability, especially on inflation, which has been shown to fuel investment uncertainty and investment insensitivity to interest rate. |
| first_indexed | 2024-04-09T15:19:09Z |
| format | Article |
| id | doaj.art-4f5e57a6f30d46f299a9a21a3d55f8c2 |
| institution | Directory Open Access Journal |
| issn | 2405-8440 |
| language | English |
| last_indexed | 2024-04-09T15:19:09Z |
| publishDate | 2023-04-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Heliyon |
| spelling | doaj.art-4f5e57a6f30d46f299a9a21a3d55f8c22023-04-29T14:50:22ZengElsevierHeliyon2405-84402023-04-0194e14605A re-examination of the exchange rate – Interest rate differential relationship in GhanaMark Kojo Armah0Isaac Kwesi Ofori1Francis Kwaw Andoh2Department of Data Science and Economic Policy, University of Cape Coast, Ghana; Corresponding author.School of Economics, University of Insubria, Via Monte Generoso, 71, 21100, Varese, VA, ItalyDepartment of Applied Economics, University of Cape Coast, GhanaThis study revisits the relationship between the exchange rate and interest rate differential in Ghana with a focus on the period in which the country adopted the inflation targeting regime. Using macro-data spanning 2002 to 2019 for Ghana and the United States, we show the nonexistence of the relationship in both the short-run and long-run. Further, we show a positive but slow responsiveness of the exchange rate to interest rate differential shocks from the short-run to the medium term. The long-run results, however, shows a case of a strong and significant response of exchange rate to interest rate differential shocks. We recommend that the Bank of Ghana (BoG) addresses perennial macroeconomic instability, especially on inflation, which has been shown to fuel investment uncertainty and investment insensitivity to interest rate.http://www.sciencedirect.com/science/article/pii/S2405844023018121Inflation targetingExchange rateImpulse response functionInterestRate differentialVAR |
| spellingShingle | Mark Kojo Armah Isaac Kwesi Ofori Francis Kwaw Andoh A re-examination of the exchange rate – Interest rate differential relationship in Ghana Heliyon Inflation targeting Exchange rate Impulse response function Interest Rate differential VAR |
| title | A re-examination of the exchange rate – Interest rate differential relationship in Ghana |
| title_full | A re-examination of the exchange rate – Interest rate differential relationship in Ghana |
| title_fullStr | A re-examination of the exchange rate – Interest rate differential relationship in Ghana |
| title_full_unstemmed | A re-examination of the exchange rate – Interest rate differential relationship in Ghana |
| title_short | A re-examination of the exchange rate – Interest rate differential relationship in Ghana |
| title_sort | re examination of the exchange rate interest rate differential relationship in ghana |
| topic | Inflation targeting Exchange rate Impulse response function Interest Rate differential VAR |
| url | http://www.sciencedirect.com/science/article/pii/S2405844023018121 |
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