The dynamic relationship of crude oil prices on macroeconomic variables in Ghana: a time series analysis approach

TL;DR

This paper analyzes how crude oil prices influence inflation and interest rates in Ghana using time series data, revealing long-term positive effects on inflation and negative effects on interest rates.

Contribution

It applies ARDL bounds testing to Ghanaian macroeconomic data to uncover the dynamic relationship between oil prices, inflation, and interest rates.

Findings

Positive long-term relationship between oil prices and inflation

Negative relationship between oil prices and interest rates

Short-term effects of inflation lag are insignificant

Abstract

The study investigates the effects of crude oil prices on inflation and interest rate in Ghana using data obtained from Bank of Ghana data repository. The Augmented Dickey-Fuller and the Phillips-Perron tests were used to test the presence or otherwise of unit root relationship among the variables. The stationarity test showed that the variables are either integrated of order one or integrated of order zero. Autoregressive distributed lag bounds test approach was adopted to examine cointegration among the variables. The results showed a positive relationship between crude oil prices and inflation in the long-run. The short-run show the coefficient of the first period lag value of inflation is negative, but statistically insignificant in the short-run. However, the second period lag value of inflation is positive and significant. The result also shows negative relationship between crude oil price and interest rate. Based on the findings, it is recommended that the government of Ghana should provide and strengthen the efficiency of the public transport system to help reduce transport fares in order to shield the poor from the implications of oil price increases in Ghana.