Abstract:
ABSTRACT
Exchange rate is a key economic variable all around the world due to its multi faceted nature and its effect on the lives of every individual in many ways.
However, the non-linear and the non-stationary characteristics of exchange
rates make them difficult to understand their dynamics as well as factors that
drive exchange rates. Therefore, the behaviour of the GHS/USD exchange rate
from 2000 to 2019 was examined in this research work. The study adopted the
heterogeneous market hypothesis (HMH) to explain the intrinsic
characteristics of the GHS/USD exchange rate. To achieve the objectives of
the study, the ensemble empirical mode decomposition (EEMD) technique
was employed to determine the factors influencing the GHS/USD exchange
rate. Using the EEMD, the GHS/USD exchange rate was decomposed into
intrinsic mode functions (IMFs) and a residue. Secondly, the IMFs and the
residue were classified into high-frequency, medium-frequency, low frequency and trend components. These were then analysed and it was found
that the macroeconomic fundamentals were the main drivers of GHS/USD
exchange rates. Finally, the rescaled range analysis (R/S analysis) and the
autoregressive fractionally integrated moving average (ARFIMA) were used
to also investigate and analyse the existence of long memory in GHS/USD
exchange rates. It was observed that the GHS/USD exchange rates possessed
long memory characteristics. It is, therefore, recommended that policymakers,
as well as investors, should closely monitor the movement of the exchange
rates and macroeconomic fundamentals when formulating exchange rate
policies and adopting investment strategies.
