George Tweneboah

Macroeconomic Factors and Stock Market Movement: Evidence from Ghana

This study examines the role of macroeconomic variables on stock prices movement in Ghana. We use the Databank stock index to represent Ghana stock market and (a) inward foreign direct investments, (b) the treasury bill rate (as a measure of interest rates), (c) the consumer price index (as a measure of inflation), and (d) the exchange rate as macroeconomic variables. We analyze both long-run and short-run dynamic relationships between the stock market index and the economic variable with quarterly data for the above variables from 1991.1 to 2006.4 using Johansens multivariate cointegration test and innovation accounting techniques. We established that there is cointegration between macroeconomic variables identified and Stock prices in Ghana indicating long run relationship. Results of Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) indicate that interest rate and Foreign Direct Investment (FDI) are the key determinants of the share price movements in Ghana.

Implications of Oil Price Shocks for Monetary Policy in Ghana: A Vector Error Correction Model

We estimate a Vector Error Correction Model to explore the long run and short run linkages between the world crude oil price and economic activity in Ghana for the period 1970:1 to 2006:4. The results point out that there is a long run relationship between the variables under consideration. We find that an unexpected oil price increase is followed by an increase in price level and a decline in output in Ghana. We argue that monetary policy has in the past been with the intention of lessening negative growth consequences of oil price shocks, at the cost of higher inflation.

Co-movement of real exchange rates in the West African Monetary Zone

Abstract In three different ways of lead–lag causal relationship, covariance/correlation and coherence, we apply the wavelets analysis via the Continuous Morlet Wavelet Transform to delineate the significant frequency–time domain lead–lag relationships for the West African Monetary Zone member countries for real US dollar exchange rates and their absolute log returns from January 2001 to April 2015. The results indicate that lead–lag associations at different periodicities vary across the countries. No one country comes off as leading conveniently for both real and absolute returns of the exchange rates. Our results corroborate other evidences of non-convergence of exchange rates in the monetary zone, which hinders the eventual implementation of the single currency in the ECOWAS region.

ON THE SUSTAINABILITY AND SYNCHRONIZATION OF FISCAL POLICY IN LATIN AMERICA

This paper explores the sustainability of fiscal policy for a panel of Latin American countries over the period 1990–2012. We extend the literature on the causal relationship between government expenditure (GX) and revenue (GR) in the short run and long run. Our results show a significant long-run relationship between GX and GR, suggesting that fiscal policies are consistent with their intertemporal budget constraints. We establish bidirectional causality between revenue and expenditure in the long run, indicating a contribution from both GX and GR in establishing steady state equilibrium following substantial deviations. Our data also uphold the fiscal synchronization thesis.

Currency Substitution And Stability Of Money Demand In Ghana

Monetary policymakers and economists in Ghana have become very disconcerted about the policy implications of the widespread demand for and gradual shift to the use of foreign currency in the economy in recent years. The question of whether the mounting trend of dollarization provides evidence of currency substitution has remained an empirical quest. The purpose is to empirically establish whether the data provides evidence of currency substitution. The method employed models a long-run money demand function within the portfolio balance framework, which distinguishes between capital mobility and currency substitution and also accounts for the pre and post inflation targeting monetary policy regime. The estimation technique follows the cointegration and error correction framework using the Autoregressive Distributed Lag model for annual data from 1960–2013. The variables used are real money balances (defined in both narrow and broad terms) and real income, domestic interest rates, foreign interest rates, and exchange rates. The study reports that there is a stable long-run relationship between real money balances and the determinants. The results highlight that the income elasticity for narrow money is close to one but less than unity for broad money. The coefficient of the interest rate variable is negative for narrow money but positive for broad money pointing out differences in the definition of the two categories of money. Also, whereas the coefficient for returns on foreign bonds is negative for both narrow and broad monetary aggregates, the exchange rate variable remains positive throughout. The findings reveal that, although there is no empirical evidence to support currency substitution, exchange rates and foreign interest rates are significant factors in the domestic money demand dynamics. The validity of foreign interest rate and/or the expected depreciation of the domestic currency in the long-run money demand equation capture the existence of capital mobility. The implication is that domestic agents use foreign currencies together with the domestic currency, although the domestic currency remains the legal tender for domestic transactions. The results underscore the importance of developments in foreign interest rates and exchange rates for fiscal, monetary, and exchange rate policies in Ghana. The policy implications of these findings have been deliberated to provide a guide for policy choices in the emerging economy.

The Changing Trade Pattern of Emerging Economies: Gravity Model of Ghana's Trade Flow

This paper applies the augmented gravity model to study the changing pattern of Ghanas bilateral trade flows and to extract practical trade policy implications. Economic classification dummies are included in the gravity equation to characterize the peculiarity of South-South and North-South trade patterns. The result indicates that Ghanas trade especially the export sector has greater trading potential with the emerging and developing economies than the high income economies.