Understanding Global Commodity Price Shocks on Exchange Rates and Inflation in Emerging Economies: ARDL Perspective
Seth Acquah Boateng *
Department of Data Science and Economic Policy, University of Cape Coast, PMB, Cape Coast, Ghana.
Frank Agyemang Karikari
Department of Accounting, University of Cape Coast, University of Cape Coast, PMB, Cape Coast, Ghana.
Michael Provide Fumey
School of Public Policy and Administration, Northwestern Polytechnical University, Xi’an, 710072, P.R.C., China.
Emmanuel Ekow Asmah
Department of Data Science and Economic Policy, University of Cape Coast, PMB, Cape Coast, Ghana.
Stephen Antwi Winful
Department of Finance, University of Cape Coast, PMB, Cape Coast, Ghana.
*Author to whom correspondence should be addressed.
Abstract
Aims: To analyze the changing relationship between commodity prices (cocoa, diesel, gold, oil, petrol) and macroeconomic factors (exchange rate and inflation) in Ghana and differentiate between long-term and short-term effects.
Study Design: Quantitative Design with Time series analysis using the Autoregressive Distributed Lag (ARDL) technique.
Methodology: The study utilized cointegration and Error Correction Model in econometric estimation. Time series data for commodity prices and macroeconomic factors were collected for the period 2003M01 to 2023M10. The ARDL technique was applied to differentiate between long-term and short-term effects of inflation and exchange rates.
Results: The short-run and long-run results indicate a positive relationship between commodity prices and inflation and exchange rates. A 1% increase in diesel prices is associated with a 0.23% appreciation in Ghana's currency in the short run (p=0.019) and a 1.76% rise in inflation in the long run (p=0.012). Past inflation has a dominant influence on current inflation, with a 1 percentage point increase in the previous year's inflation leading to a 0.45 percentage point increase in the current inflation rate.
Conclusion: Policymakers should prioritize stabilizing diesel prices, invest in storage facilities, promote alternative energy sources, strengthen domestic production and distribution of essential commodities, and adopt targeted monetary and fiscal policies to anchor inflationary expectations and address inflation inertia in Ghana.
Keywords: Commodity prices, inflation, exchange rate, inflation inertia, autoregressive distributed lag (ARDL)