n Ghanaian Journal of Economics - Financial dollarization and exchange rate volatility in Ghana
|Article Title||Financial dollarization and exchange rate volatility in Ghana|
|© Publisher:||The African Finance & Economics Consult|
|Journal||Ghanaian Journal of Economics|
|Affiliations||1 University of the Witwatersrand|
|Publication Date||Dec 2015|
|Pages||24 - 88|
|Keyword(s)||Dollarization, Exchange rate, Exponential GARCH, Ghana and Volatility|
This paper provides evidence on the effects of dollarization on the volatility of nominal and real Ghana cedi/U.S. dollar exchange rate for the period January 1990 to March 2015 using exponential Generalized Autoregressive Conditional Heteroske-dasticity (E-Garch) model. The results provide evidence of a positive impact of dollarization on the volatility of nominal bilateral GHS/USD exchange rates. This suggests that as the demand for U.S. dollars becomes more extensive, the cedi/dollar exchange rate becomes more volatile and unstable. The asymmetry parameter implies that a positive shock in the underlying error term has the same effect as a negative shock of the same magnitude on the volatility function of the bilateral exchange rates. Addressing the increasing dollarization of the Ghanaian economy would be an appropriate policy to stabilise the cedi.
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