An empirical investigation of crude oil price volatility and inflation in Ghana.
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Date
2018-09
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KNUST
Abstract
Oil prices have both direct and indirect effect on the general price levels of the domestic economy. According to Arinze (2011) rising oil prices can have direct effect on the consumer price index (CPI) by directly influencing the prices of energy related products like motor fuels, electricity, gas and household fuels captured under the energy component of the CPI.
Also because energy prices form a considerable portion of the production cost of most goods produced; usually in the form of fuelling machineries and transportations, rising oil prices can indirectly affect the core portion of CPI. The study had the main objective of investigating the effect of crude oil price volatility on inflation in Ghana.
Specifically, the study sought to examine the effect of oil price volatility on consumer and producer prices in Ghana, and also assess the response of consumer and producer prices to oil price shocks. The study estimates separate VECM models for consumer prices and producer prices using time series data from 1980 to 2016. The study found that oil price volatility had a positive effect on both consumer prices and producer prices. The impulse response functions also showed the positive response of consumer prices and producer prices are likely to be permanent and exist in the economy for a long time.
Also the study found that exchange rate reduces consumer prices whereas government expenditure and money supply leads to higher consumer prices.
On the other hand, exchange rate and money supply reduces producer prices, imports increases producer prices. The study recommends that policy makers and the various authourities consider policies that can enable the country diversify its energy mix to help reduce the positive effect that oil price has on inflation. Also, government should implement policies that will help reduce the risk from the country’s vulnerability of the oil price volatility.
Description
A Thesis Submitted In Partial Fulfillment Of The Requirements For Award Of The Degree Master Of Science In Economics.