Sin-Yu Ho

The Real Exchange Rate, the Ghanaian Trade Balance, and the J-curve

ABSTRACT Using linear and nonlinear specifications, we studied the effects of real exchange rate changes on the trade balance of Ghana during the period 1986Q1 to 2016Q3. We found no evidence in support of the short- and long-run impact of exchange rate changes on the trade balance in the linear specification. The J-curve is refuted in this case. In contrast, exchange rate changes affected the trade balance in the nonlinear specification. Depreciations improve the trade balance in the long run, but appreciations have no impact. Hence, exchange rate changes have nonlinear effects on the trade balance. This is consistent with the J-curve phenomenon.

Nonlinear effects of exchange rate changes on the South African bilateral trade balance

ABSTRACT In testing for the J-curve, previous studies have shown that the trade balance model is better fitted using cointegration and error correction mechanisms. These mechanisms are able to incorporate the short-term deterioration and the long-term improvement of the trade balance – the definition of the J-curve. However, the drawback of the established cointegration and error correction frameworks is that they assume symmetry in the equilibrium adjustment process. Incidentally, studies which have used the linear frameworks have found little support for the J-curve. Since the adjustment process could be nonlinear, a fresh investigation of the J-curve using nonlinear approaches could provide competing evidence. This paper retested the J-curve by using quarterly data for South Africa and her key trade partners (China, Germany, India, Japan, the UK and the USA) and found the linear specification to support the J-curve phenomenon in only two cases (India and the USA) under relaxed conditions. In contrast, the nonlinear specification supported the J-curve phenomenon in all cases at no cost of serial correlation and functional misspecification. We also found the real exchange rate changes to have significant nonlinear effects on the South African trade balance.

The Determinants of Economic Growth in Ghana: New Empirical Evidence

This article deals with an investigation into the determinants of economic growth in Ghana over the period from 1975 to 2014. In particular, we investigated the impact of physical capital, human capital, labour, government expenditure, inflation, foreign aid, foreign direct investment, financial development, globalization and debt servicing on economic performance within an augmented Solow growth model. It was found that, in the long run, both human capital and foreign aid have a positive influence on output, while labour, financial development and debt servicing have a negative impact on output. It was also found that, in the short run, government expenditure and foreign aid have a positive influence on economic growth, while labour, inflation and financial development have a negative impact on economic growth. These findings hold important policy implications for the country.

Determinants of Economic Growth in Hong Kong: The Role of Stock Market Development

Abstract We assessed the impact of stock market development on growth in Hong Kong for the period 1986Q2 to 2015Q4. By constructing a composite index of stock market development and controlling for the key determinants of growth, we found stock market development to promote growth both in the short and long run. We further constructed an alternative index of stock market development and found this conclusion to be robust. Our findings are broadly consistent with the growth experience of Hong Kong. Policies meant to promote stock market development may enhance growth in Hong Kong as well.

Monetary uncertainty and the demand for money in Ghana

Monetary uncertainty may cause the demand for money to increase or the velocity of money to fall. This is the so-called Friedman’s hypothesis. This hypothesis has received mixed empirical support in the literature, thereby necessitating further examination. An important issue in the literature is that the existing studies have mainly focused on developed economies when testing Friedman’s hypothesis. The few studies focusing on developing countries have mainly tested the stability of the demand for money function. However, how monetary uncertainty determines the behaviour of the demand for money function is equally important. In this paper, we tested Friedman’s hypothesis by focusing on a developing country, thereby adding to the existing literature. Using a technique which allows us to differentiate short-run impact from long-run impact, we examined the impact of monetary uncertainty on the money demand in Ghana during the period 1990Q1 to 2016Q3. In addition, we assessed the stability of the demand for money function in this country. We found that monetary uncertainty has a negative and significant impact on the demand for money in both the short and the long run. This finding refutes Friedman’s hypothesis. The implication of this finding is that the public prefers to hold safer assets to cash money during periods of monetary uncertainty in Ghana. Finally, we found evidence in support of a stable demand for money function in Ghana. One implication of the stable demand for money function in the country is that monetary policy aimed at smoothing the growth rates of monetary aggregates could enhance the stability of the economy by ruling out monetary policy as a source of uncertainty. The other is that, because a stable demand for money function implies the demand for money changes in a predictable fashion, the central bank may be able to achieve the objectives of the inflation-targeting framework that it is currently practising.

Exchange rate uncertainty and domestic investment in Ghana

Abstract The impact of exchange rate uncertainty on domestic investment remains a topical issue in international finance. The existing studies based on macro- or micro-level data have produced mixed findings leaving the issue widely open for further investigation. We revisit this issue at the macro-level by differentiating the short-run impacts of exchange rate uncertainty from long-run impacts. Using annual data for Ghana covering the period 1980–2015, we found that exchange rate uncertainty has differential impacts on domestic investment in the short run. That is, while the current level of uncertainty enhances investment, previous levels of uncertainty dampen investment. In the long run, exchange rate uncertainty has a positive impact on domestic investment. These findings are robust to alternative specifications of our model.