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Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression

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  • Sanusi, Aliyu Rafindadi

Abstract

This 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.

Suggested Citation

  • Sanusi, Aliyu Rafindadi, 2010. "Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression," MPRA Paper 29491, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29491
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    File URL: https://mpra.ub.uni-muenchen.de/29491/1/MPRA_paper_29491.pdf
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    References listed on IDEAS

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    Cited by:

    1. Azwifaneli I. Nemushu, 2016. "Rand volatility and inflation in South Africa," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(6), pages 8-20, December.
    2. Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.

    More about this item

    Keywords

    Exchange Rate Pass-Through; Inflation; Structural Vector-Autoregression; Foreign Aid; Ghana;

    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

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