IMPACT OF MACROECONOMIC VARIABLES ON EXCHANGE RATE MOVEMENTS IN GHANA

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ABSTRACT

The study sought to analyze the effect of exchange rate movements on Ghana’s economy (macroeconomic variables); it investigates the relationship these variables have in determining the stability of foreign exchange rate in Ghana, that is, the pricing of the Ghanaian domestic currency relative to the dollar in the context of macroeconomic variables. From different angles and aspect, this study is intended to add to related literature; provide new theoretical arguments and a comprehensive study on reasons underlying exchange rate movements in Ghana. This study examines how macroeconomic variables affect exchange rate movements in Ghana and may help other researchers to undertake further studies  in exchange rates determinants in Ghana and other related topics.

In the era of globalization where the foreign exchange market has assumed a very important role in determining growth in countries around the globe. Most countries have had to adequately manage their domestic currencies in relation to major trading currencies to attain and sustain steady rates of long-term economic growth. This premise is based on the assertion that an appreciation or depreciation of domestic currencies plays a key role in influencing a country’s trade balance (Stucka, 2004; Aziz, 2008) and ultimately its growth (McPherson and Rakovski, 2000).  In  Ghana,  the  relationship  among  exchange  rate  and  macroeconomic

variables are paramount in understanding the depreciation of the cedi relative to

the dollar and other currencies as well as the behavior of the consumer prices and balance of payment in Ghana.

This study uses empirical data from Ghana of some selected macroeconomic variables and employs econometric models’ technique to arrive at findings based on the patterns discovered. The selected economic variables are lending interest rates, foreign direct payment, imports, exports, gross domestic products and inflation.