Abstract:
The empirical literature on volatility in exchange rates and its impact on terms of
trade is expanded upon in this study, considering the role of institutional quality. The
research employs GARCH and PARDL techniques to analyse data on member
countries of the Economic Community of West Africa States (ECOWAS), between
2000 and 2021. The findings revealed past volatility in exchange rates has a
significant predictive power on current volatility. However, the relationship between
inflation and exchange rates differs between non-francophone and francophone
countries, with inflation acting as a positive driver in the former and a negative driver
in the latter. The study also finds that most indicators of institutional quality, except
regulatory quality, have a significant negative impact on exchange rate in the long
run. Institutional quality, financial development, external debt, and debt services yield
mixed results. Additionally, majority of variables in the interim are insignificant. The
study highlights that the overall imbalance in terms of trade within the sub-region
leads to currency destabilization and a subsequent reduction in aggregate GDP. In the
short run, the impact of these variables is significant for oil-producing nonfrancophone
countries, while oil-producing francophone countries do not experience
significant impacts. Therefore, the study highlights on the urgency to implement
appropriate fiscal control policy and focus on the dynamic patterns to ensure stability
of the exchange rates. Also, strong institutions are needed in formulating effective
policies to stabilise exchange rates. The study finally recommends that strategic value
chain policies should be implemented.
Description:
A thesis in the Department of Applied Finance and Policy
Management, School of Business, submitted to the School of
Graduate Studies in partial fulfilment
of the requirements for the award of the degree of
Master of Philosophy
(Finance)
in the University of Education, Winneba
SEPTEMBER, 2023
