Dynamics of Foreign Exchange Reserves Accumulation and Macroeconomic Stability: The Ghanaian Perspective
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Dynamics of Foreign Exchange Reserves Accumulation and Macroeconomic Stability: The Ghanaian Perspective
Annotation
PII
S032150750001855-2-1
DOI
10.31857/S032150750001018-1
Publication type
Article
Status
Published
Authors
Dennis Osei 
Affiliation: Rostov State University of Economics
Edition
Pages
61-65
Abstract

This study examines the impact of Ghana’s foreign exchange reserves on improving the investment climate of the economy through stabilizing the macroeconomic environment. According to the Maastricht criteria, the stability of the macroeconomic environment is assessed by five variables: inflation, interest rate, exchange rate stability, the ratio of public debt to GDP and government budget deficit. The study adopted the VAR-Vector Auto Regression method to examine the relationship between foreign exchange reserves and selected variables that measures the macroeconomic stability. Annual data on these variables were taken from the Central Bank of Ghana and World Bank websites for the period from 2000 to 2016 inclusive. The result obtained from the analysis showed that the dynamics of foreign exchange reserves of Ghana has a significant statistical impact only on the exchange rate (GHS/USD) among all the macroeconomic variables. The paper concludes that the continued accumulation of foreign exchange reserves by the Central Bank of Ghana will steer the depreciation of the Ghanaian cedi, increase revenues and profits of the export sector and increase investment and economic growth based on higher exports. Ghana’s foreign exchange reserves, via the channel of preventing the appreciation of the Ghanaian cedi, will reduce the risk premium of foreign investments and, by inference, help to attract a higher share of foreign investments.

Keywords
Ghana, foreign exchange reserves, Maastricht criteria, macroeconomic stability, investment climate, exchange rate, depreciation
Received
19.10.2018
Date of publication
19.10.2018
Number of purchasers
7
Views
396
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0.0 (0 votes)
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