This paper uses a VEC model to assess the relationships between macroeconomic variables and how they conform to empirical theories of an open economy in literature. We assess the reserve policy of Ghana, and the effect of exchange rates on exports. We also examined the effects of foreign direct investments on the volatility of the exchange rates, and the ability of the central bank to roll on bail outs in times of financial turmoil.
We found an increase in exports during episodes of currency appreciation in both time periods, and also, the increase in FDIs led to depreciation of the currency. We again found that, Ghana’s reserves policy is not a planned intervention, and mostly depends on occasional large inflows. This is consistent with the findings of the IMF staff as stipulated in the article iv consultation report (2017). We also found positive correlation between reserves and the financial sector. This is in conformity with the empirical works of Lane and Burke (2001) and also Obstfeld et al., (2010). However, we could not confirm the findings in Greenspan (1999) and Bussiere et al., (2015) of short term debts been the most important metric for international reserves neither did we find evidence that reserves accumulation is associated with depreciating currencies in developing economies.
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In-Text Citation: (Hongxing & Rahaman, 2018)
To Cite this Article: Hongxing, Y., & Rahaman, A. R. A. (2018). Ghana’s Reserves and Currency Volatility: A Comparison with Empirical Theories. International Journal of Academic Research in Business and Social Sciences, 8(1), 87–99.
Copyright: © 2018 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
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