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

Aliyu Rafindadi Sanusi

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Exchange Rate Pass-Through; Inflation; Structural Vector-Autoregression; Foreign Aid; Ghana (search for similar items in EconPapers)
JEL-codes: E31 F31 F41 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in The West African Journal of Monetary and Economic Integration 1.10(2010): pp. 25-54

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:29491

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