Effect of exchange rate volatility on economic growth in Ghana: An empirical investigation

Abstract

The study investigates the relationship between exchange rate volatility and economic growth in Ghana using quarterly data from 1990 to 2012, by means of the Autoregressive Distributed Lag (ARDL) approach and the Granger causality test. The study found a unique cointegrating relationship between economic growth and exchange rate volatility. The regression results show that exchange rate volatility exerts negative and statistically significant effects on economic growth both in the short-run and long-run suggesting that exchange rate volatility adversely influences economic growth in Ghana. The Granger causality test results revealed unidirectional causality between exchange rate volatility and economic growth with the causality running from exchange rate volatility to economic growth. It is therefore recommended that Bank of Ghana ensures a stable exchange rate in order to stimulate economic growth in Ghana