The differential effects of oil price shocks on exchange rate, inflation, and monetary policy rate in Ghana

Abstract This paper investigates the differential effects of oil price shocks on exchange rate, inflation, and monetary policy rate in Ghana. The paper also introduces the trade weighted U.S. dollar-major currencies index as another measure for identifying the speculative component of the real price of oil. To execute its objective, the paper employed a two-step estimation technique and monthly data from 1973 to 2018. The two-step method involves structural VAR in the first step and OLS regressions in the second step. Full sample estimation results indicate that oil price shocks are inconsequential to exchange rate, inflation, and monetary policy rate in Ghana. Furthermore, when the sample is split into two sub-periods, the study did not find the fact that Ghana switching from a net oil-importer to a net oil-exporter have any deferential effect. Taken together, the findings suggest that even in emerging and developing countries, a fading relationship between oil price shocks and macroeconomic indicators could exist.