Impact of Oil Prices on Nominal Exchange Rate: Evidence from Ghana

The research work analysis the how crude oil prices have impact on the nominal exchange rate in Ghana. The problem statement of the study was that the endorsement of current floating exchange rate by Central Bank as part of economic reform program in 1983 has brought about not a single year that the currency not losing it value. This effect of the depreciation of exchange rate has posed a major challenge among individuals, business community, policy makers and government. The Government attribute these volatility in exchange rate to the gradual changes in the generational mix from hydro to thermal energy source, as the nation import more crude oil from the world market to power the generational plants in order to produces electricity couple with the amount of oil that these Ghana Chamber of Bulk Oil Distributors and Oil Marketing Companies import in the country for industries and transportation are to be the cause of the depreciation of the Cedis. The study adopted Aziz (2009) model to estimate the short run and long run relationship between oil prices and exchange rate as well as time series analysis. The study employed an Autoregressive Distributed Lag (ARDL) approach to analyse the annual data from 1983-2014 in order to get the results estimation which help achieve the above objectives. The empirical results of the study indicated that Oil prices from the international market, CPI, import tax influence nominal exchange rate in the long run. However, in the short run only the CPI that influences the nominal exchange rate in Ghana. Oil prices and import tax were not significant in the short run in determining the nominal exchange rate. Interest rate was not significant both the long run and the short run according to the study.