Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression
AbstractThis paper develops a Structural Vector Autoregression (SVAR) model for the Ghanaian economy to estimate the pass-through effects of exchange rate changes to consumer prices. The model incorporates the special features of the Ghanaian economy, especially its dependence on foreign aid and primary commodity exports for foreign exchange earnings. The findings show that the pass-through to consumer prices, although incomplete, is substantially large. This suggests that exchange rate depreciation is a potentially important source of inflation in Ghana. Using variance decomposition analyses, it is found that monetary expansion has been more important in explaining Ghana’s actual inflationary process than the exchange rate depreciation. One policy implication of these findings is that policies that aim at lowering inflation must focus on monetary and exchange rate stability.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29491.
Date of creation: Jun 2010
Date of revision:
Publication status: Published in The West African Journal of Monetary and Economic Integration 1.10(2010): pp. 25-54
Exchange Rate Pass-Through; Inflation; Structural Vector-Autoregression; Foreign Aid; Ghana;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-AFR-2011-03-26 (Africa)
- NEP-ALL-2011-03-26 (All new papers)
- NEP-CBA-2011-03-26 (Central Banking)
- NEP-MAC-2011-03-26 (Macroeconomics)
- NEP-MON-2011-03-26 (Monetary Economics)
- NEP-OPM-2011-03-26 (Open Economy Macroeconomic)
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