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Relevance of Financial Markets for Exchange Rate Modeling in Ghana

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  • George Tweneboah

Abstract

This paper employs the cointegration and Vector Error Correction (VEC) methodology to explore exchange rate modeling in Ghana, by considering the interactions between the goods and capital assets market, using monthly data spanning from January 1997 to December 2007. The empirical evidence supports a long-run relationship between prices, interest rates and exchange rates in which the signs are consistent with the joint validity of the unrestricted Purchasing Power Parity (PPP) and Uncovered Interest Parity (UIP) conditions. Further, Likelihood Ratio (LR) tests based on the cointegration vector show that the strict forms of the PPP and UIP conditions between Ghana and the USA do not hold as stationary relations. The findings suggest that the interactions between the goods and capital assets market matter for the conduct of monetary policy and exchange rate modeling in Ghana.

Suggested Citation

  • George Tweneboah, 2009. "Relevance of Financial Markets for Exchange Rate Modeling in Ghana," The IUP Journal of Financial Economics, IUP Publications, vol. 0(3 & 4), pages 24-36, September.
    • Handle: RePEc:icf:icfjfe:v:07:y:2009:i:3&4:p:24-36
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    Cited by:

    1. Hafsa Hina & Abdul Qayyum, 2015. "Re-estimation of Keynesian Model by Considering Critical Events and Multiple Cointegrating Vectors," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(2), pages 123-145.
    2. Hina, Hafsa & Qayyum, Abdul, 2013. "Estimation of Keynesian Exchange Rate Model of Pakistan by Considering Critical Events and Multiple Cointegrating Vectors," MPRA Paper 52611, University Library of Munich, Germany.

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