Inflation uncertainty, exchange rate depreciation and volatility: evidence from Ghana, Mozambique and Tanzania

Hassan Molana, Kwame Osei-Assibey

    Research output: Working paperDiscussion paper

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    Abstract

    While flexible exchange rates facilitate stabilisation, exchange rate fluctuations can cause real volatility. This gives policy importance to the causal relationship between exchange rate depreciation and its volatility. An exchange rate may be expected to become more volatile when the underlying currency loses value. We conjecture that a reverse causation, which further weakens the currency, may be mitigated by price stability. Data from Ghana, Mozambique and Tanzania support this: depreciation makes exchange rate more volatile for all but volatility does not causes depreciation in Tanzania which has enjoyed a more stable inflation despite all countries adopting similar macro-policies since early 1990s.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2010

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.246
    ISSN (Print)1473-236X

    Keywords

    • Exchange rates
    • Depreciation
    • Volatility
    • Causality
    • GARCH
    • VAR

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    Molana, H., & Osei-Assibey, K. (2010). Inflation uncertainty, exchange rate depreciation and volatility: evidence from Ghana, Mozambique and Tanzania. (Dundee Discussion Papers in Economics; No. 246). University of Dundee.