Does the exogeneity of oil prices matter in the oil price-macro-economy relationship for Ghana?

Mutawakil M. Zankawah and Chris Stewart
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Mutawakil M. Zankawah: Kingston University London

No 2019-2, Economics Discussion Papers from School of Economics, Kingston University London

Abstract: Using annual data from 1971 to 2014 we consider whether the relationship between crude oil prices and the macro-economy in the relatively small economy of Ghana is affected by the treatment of crude oil prices as exogenous or endogenous. We use vector autoregressions, vector error-correction models, scenario-based dynamic forecasting, and autoregressive distributive lag specifications. There is little evidence that international crude oil prices have a significant negative effect on Ghana’s output in either the short-run and long-run, regardless of whether crude oil prices are treated as exogenous or endogenous. This implies that increases in crude oil prices do not put a binding constraint on the monetary authorities to loosen monetary policy to offset its adverse effect on output. If inflation is a priority, policy makers could focus on inflation stabilization by tightening monetary policy when oil prices rise.

Keywords: Ghana; oil prices; exogeneity; macro-economy (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2019-02-25
New Economics Papers: this item is included in nep-afr, nep-ene and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ris:kngedp:2019_002

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