The Determinants of the Real Exchange Rate in Ghana: A Focus on Inflation Using a Bound Test Approach

The Exchange rate and hence the real exchange rate in Ghana has been depreciating for some time now which calls for much attention. Surprisingly, very few studies have been done on the determinants of the real exchange rate in Ghana and these studies failed to include inflation. This paper therefore using time series data from 1985-2010, adopted an Autoregressive Distributed Lag (ARDL-Bounds Test) approach to co-integration to find out the determinants of the real exchange rate in Ghana by including inflation. The study found inflation to have a positive impact on the real exchange rate in the long run but a negative impact in the short run. Thus the study concluded that inflation depreciated the real exchange rate in the short run and appreciated the real exchange rate in the long run.