Interdependence of Major Exchange Rates in Ghana: A Wavelet Coherence Analysis

Peterson Owusu Junior, George Tweneboah () and Anokye M. Adam

Journal of African Business, 2019, vol. 20, issue 3, 407-430

Abstract: We have employed the three-dimensional continuous Morlet wavelet transform methodology to explore the co-movement amongst the returns of four major currencies in Ghana (dollar, euro, pound, and yen) for the period May 1999 to February 2018. The analysis reveals that the dynamics of the interdependence of the currencies is time-varying and heterogeneous. Our empirical findings demonstrate that the currencies are closely linked or interconnected. The lead–lag relationships between the returns of the exchange rates established that volatilities in the euro and yen significantly affect movements in the other currencies in daily and weekly exchange rate returns. The presence of lead–lag effects and stronger co-movements at short-run fluctuations may induce arbitrage and diversification opportunities to investors, albeit with limited space. The differences in the co-movements of returns and the evidence of contagion among the foreign exchange markets provide reliable incentive to the monetary authorities for unflinching strides to halt the speeding exchange rates.

Date: 2019
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DOI: 10.1080/15228916.2019.1583973

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