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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Volatility and asymmetry of the USD/GHS exchange rate: monetary policy implications in Ghana
Author:Akosah, Nana Kwame
Year:2014
Periodical:Ghanaian journal of economics: a journal of the African Finance and Economics Consult (ISSN 2309-8945)
Volume:2
Pages:154-175
Language:English
Geographic term:Ghana
Subjects:exchange rates
monetary policy
External link:https://journals.co.za/doi/abs/10.10520/EJC169141
Abstract:The paper examines the uncertainty and asymmetric effect of the dollar/cedi exchange rate using GARCH family models and the monetary policy implications of such uncertainties. The empirical results reveal that asymmetric and leverage effects are existent and persistent in the USD/GHS exchange rate such that negative news tends to exert a larger destabilizing effect on the volatility of exchange rate than positive news of the same magnitude. There is also a greater tendency for the volatility in domestic exchange rate to rise, largely driven by the continuous exchange rate depreciation. This study establishes that exchange rate volatility is remarkably restrained during the adoption of Heavily Indebted Poor Countries' Initiatives (HIPC) but has subsequently increased, following the adoption of inflation targeting (IT) in Ghana. The empirical results confirm the effectiveness of interest rate (especially the interbank rate) in dampening the pass through of exchange rate volatility to inflation, albeit sluggishly, with a three-month policy transmission lag. The study therefore supports policy measures that rein in the rapid depreciation of domestic currency to help mitigate the upward bias in the volatility of USD/GHS exchange rate. Bibliogr., notes, ref., sum. [Journal abstract]
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