Modeling the volatility of exchange rate and international trade in Ghana: empirical evidence from GARCH and EGARCH

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dc.authoridBekun, Festus Victor/0000-0003-4948-6905
dc.authoridOnifade, Stephen Taiwo/0000-0003-1497-7835
dc.contributor.authorYussif, Abdul-Razak Bawa
dc.contributor.authorOnifade, Stephen Taiwo
dc.contributor.authorAy, Ahmet
dc.contributor.authorCanitez, Murat
dc.contributor.authorBekun, Festus Victor
dc.date.accessioned2024-09-11T19:51:55Z
dc.date.available2024-09-11T19:51:55Z
dc.date.issued2024
dc.departmentİstanbul Gelişim Üniversitesien_US
dc.description.abstractPurpose The volatility of exchange rate has generally been sighted as a primary cause for various shocks and instability in international trade of Ghana as witnessed over the years and most especially in recent times. Hence, owing to the increasing trade levels between Ghana and Ghana's global trading partners, the study aims to investigate if the trade-exchange rate volatility nexus in Ghana supports the positive, negative or ambiguous hypotheses? Design/methodology/approach The study investigates the effects of Ghana's exchange rate volatility on international trade by designing import and export equations to estimate both short- and long-run specifications of the effect and employing the multivariate generalized autoregressive conditional heteroskedasticity (GARCH) with Baba, Engle, Kraft and Kroner (BEKK) specification developed by Engle and Kroner (1995) as a further check for the robustness of the findings. Monthly data between 1993 and 2017 on the real effective exchange rates of Ghana's trade with 143 trading partners were taken as the series for modeling the volatility using GARCH andexponential generalized autoregressive conditional heteroskedastic (EGARCH) models. Findings The empirical results show that the volatility of exchange rate negatively impact export performances in the Ghanian economy. On the other hand, there was no sufficient evidence to support the observed positive effect of exchange rate volatility on imports, as the effects were only significant at 10% level in the long run. Thus, it is concluded that the finding cannot confirm a relationship between volatility and import. Thus, the results present differences in the direction of the effect of exchange rate volatility on imports and exports in the context of the Ghanaian economy. Research limitations/implications Considering the fragility of the Ghanaian economy and Ghana's macro-economic indicators, the study points at the crucial need for more integration of well-informed trade policies within the country's macro-economic policy framework to contain the impacts of exchange rate volatility on trade performances. Practical implications The study contributes to literature by scope and method. More specifically, empirical studies have failed or provided little evidence uniquely on the Ghanaian economy's reaction to exchange rate volatility on the country's imports and exports. Additionally, most of the existing empirical studies measure exchange rate volatility using the standard deviation of the moving averages of the logarithmic transformation of exchange rates. This method is criticized because the method is unsuccessful in capturing the effects of potential booms and bursts of the exchange rate. The authors' study circumvents for these highlighted pitfalls. Social implications The study contributes to literature by scope and method. More specifically, empirical studies have failed or provided little evidence uniquely on the Ghanaian economy's reaction to exchange rate volatility on the country's imports and exports. Thus, the study chat a course for socio-economic dynamic of Ghanaian economy. Originality/value The study contributes to literature by its scope and method, as extant empirical studies have provided little evidence specifically on the Ghanaian economy's reaction to exchange rate volatility. Additionally, most of the existing empirical studies measure exchange rate volatility using the standard deviation of the moving averages of the logarithmic transformation of exchange rates. This method is criticized because of the method's inadequacies in capturing the effects of potential booms and bursts of the exchange rate. The study thereby essentially circumvents for these highlighted pitfalls.en_US
dc.identifier.doi10.1108/JEAS-11-2020-0187
dc.identifier.endpage324en_US
dc.identifier.issn1026-4116
dc.identifier.issn2054-6246
dc.identifier.issue2en_US
dc.identifier.scopusqualityN/Aen_US
dc.identifier.startpage308en_US
dc.identifier.urihttps://doi.org/10.1108/JEAS-11-2020-0187
dc.identifier.urihttps://hdl.handle.net/11363/7856
dc.identifier.volume40en_US
dc.identifier.wosWOS:000739330400001en_US
dc.identifier.wosqualityN/Aen_US
dc.indekslendigikaynakWeb of Scienceen_US
dc.indekslendigikaynakScopusen_US
dc.language.isoenen_US
dc.publisherEmerald Group Publishing Ltden_US
dc.relation.ispartofJournal of Economic And Administrative Sciencesen_US
dc.relation.publicationcategoryMakale - Uluslararası Hakemli Dergi - Kurum Öğretim Elemanıen_US
dc.rightsinfo:eu-repo/semantics/closedAccessen_US
dc.snmz20240903_Gen_US
dc.subjectGhanaen_US
dc.subjectExchange rate volatilityen_US
dc.subjectInternational tradeen_US
dc.subjectGARCH and EGARCH modelsen_US
dc.titleModeling the volatility of exchange rate and international trade in Ghana: empirical evidence from GARCH and EGARCHen_US
dc.typeArticleen_US

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