Effects of Macroeconomic Variables on Exchange Rate in Ghana

Abstract

This research investigates how certain important macroeconomic factors impact currency exchange rates in Ghana.  The paper uses macroeconomic indicators such as exchange rates, exports, remittances, and foreign reserves to achieve the objectives of this study. Annual Time Series data gathered from 1980 – 2021 was used in the analyses. Simple OLS regression was conducted to estimate the relationship between the variables and the exchange rate. The Johansen Cointegration Test was used to establish long-run relationships. Findings from the study indicate that exports, remittances, and foreign reserves individually have a negative relationship with the exchange rate in Ghana. Implying an increase in volumes of exports, remittances, and foreign reserves positively impacts the exchange rate as it helps strengthen the local currency in international trade. The study recommends that to stabilize the exchange rate in Ghana, the government should promote export-oriented industries to boost export performance. Secondly, policymakers should recognize the potential impact of remittances on the exchange rate and implement measures to facilitate the inflow of remittances. And finally, policymakers should focus on strategies to increase foreign reserves, such as promoting foreign direct investment and diversifying export markets.

Keywords: Exchange rate, Macroeconomic indicators, foreign reserves, Remittances, Econometric Analysis

DOI: 10.7176/JESD/15-8-07

Publication date: October 30th 2024