Asymmetric dependence between commodity prices and selected macroeconomic variables in Ghana

The nexus between commodity prices (CDP) and exchange rates (EXE) is critical, particularly for a commodity-exporting nation like Ghana. This study investigates the asymmetric dependence between commodity prices (Cocoa, Crude Oil, Gold, Petrol, and Diesel) inflation and exchange rates in Ghana. The study employed monthly frequency data from 2003 to 2023 on commodity prices, inflation, and exchange rates. The research unveils fresh insights into this complex nexus by employing a quantile-on-quantile estimation. The findings challenge the conventional understanding of a uniform positive correlation, revealing more complex dynamics. Diesel and petrol prices positively impact the Ghanaian cedi's exchange rate, which implies a depreciation of the Ghanaian cedi currency. In contrast, cocoa and crude oil prices demonstrate a predominantly negative influence, indicating an appreciation of the Cedi currency. Furthermore, the study uncovers feedback effects and bidirectional relationships between specific commodity prices and exchange rates, highlighting potential self-reinforcing cycles. Outstandingly, incorporating inflation as a factor reveals a positive link between inflation and the exchange rate and a feedback effect, signifying a depreciation of the Cedi currency. These conclusions have policy implications for Ghana's policymakers, financiers, and stakeholders, offering valuable insights to inform policy decisions, risk mitigation strategies, and investment decisions.