Exchange rates and the Economic Recovery Programme (ERP): A monetary approach to Ghana’s exchange rate 1972-2013

Date

2016-04

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Abstract

Before 1983 Government of Ghana operated a fixed exchange rate system that was subject to occasional devaluations. However, events such as a high inflation of 123 percent and an exchange rate depreciation to ¢3654.25 in 1983 among others led Ghana into a reform period known as the Economic Recovery Programme (ERP) between 1983 and 1991. It had a goal of correcting the differences in the balance of trade, liberalizing the economy and restoring the market value of the exchange rate. This research seeks to ascertain the determinants of Ghana’s exchange rate and the impact of the ERP on Ghana’s exchange rate Post-1983. Sample data from 1972 to 2013 is analysed using the monetary approach, regression and time series analysis. The research stems from an enquiry to ascertain the determinants of Ghana’s exchange rate in order to inform policy makers on the specific policy areas to tackle in exchange rate controls. The research shows that there is a high correlation between exchange rate, and the ERP, inflation and interest rates. That is, a high inflation rate leads to a depreciation in Ghana’s exchange rate relative to the US and a low inflation rate leads to an appreciation in the cedi-dollar exchange rate. The ERP reform has the greatest impact on the exchange rate of Ghana. GDP per capita growth and money growth have low impacts on the exchange rate. However, the low effect subsides with the inclusion of the interest rate variable. This result is further explained below.

Description

Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016

Keywords

Ghana, Economic Recovery Programme (ERP), exchange rate, inflation

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