IJSRP, Volume 5, Issue 1, January 2015 Edition [ISSN 2250-3153]
Dennis Nchor, Samuel A. Darkwah, LubošStřelec
This paper analyses the implication of exchange rate depreciation and nominal interest rates on inflation in Ghana. It makes use of an autoregressive distributed lag model and an unrestricted error correction model. The results from the study show that in the short run a percentage point increase in the level of depreciation of the Ghana cedi leads to an increase in the rate of inflation by 0.20%. A percentage point increase in the level of nominal interest rates however results in a decrease in inflation by 0.98%. Inflation increases by 1.67% for every percentage point increase in the nominal interest rate in the long run. The study could not prove a significant long run relationship between exchange rate depreciation and inflation.