Gabriel Obed Fosu

Crude Oil Price, Exchange Rate and Gross Domestic Product Nexus in an Emerging Market: A Cointegration Analysis

Crude oil plays an important role in the economic development of many emerging markets. This study examines the role of global crude oil price on the exchange rate (EXR) and gross domestic product (GDP) of Ghana (a new oil producing country) using the Johansen modelling technique for the period, 1980–2013. Following the cointegration of the variables, the vector error correction model was developed, which revealed that oil price could increase the GDP growth by 3 per cent but can negatively affect the EXR in the long run. The short‐term analysis points to Granger causality from oil price and GDP to energy consumption. It further reveals causality from oil price and EXR to GDP, which indicates that development in the global oil price as well as the performance of the currency can impact economic growth. No significant evidence of the oil price role in EXR volatility was found; however, the ‘Dutch disease’ syndrome was eminent through EXR appreciation. Moreover, the overall response of GDP to oil price shocks for the forecast period is insignificantly positive even though oil price shock tends to retard economic growth in the first 3 years.

Oil Price Fluctuations and it Impact on Economic Growth: A DSGE Approach.

Ghana is poised to be one of the fastest growing economies in Sub-Saharan Africa because of its emerging oil and gas industry. Ghana’s discovery of oil in commercial quantities in 2007 and its commencement of production in 2010 are expected to have an impact on the economy. To investigate these, we estimated a dynamic stochastic general equilibrium (DSGE) model based on the features of the Ghanaian Economy. We then examined the persistent effects of world oil price and monetary policy shocks (money supply-interest rate induced) on economic growth in Ghana. We realized that, a shock on interest rate leads to a sharp fall in prices which reflects the impact of the decrease in interest rate on the marginal cost. There is a paradoxical effect of a negative interest rate on total money supply. We also showed that a positive output shock has the same effect on consumption, investment, prices and wages as in the case of interest rate shock.