Abstract:
The main purpose of this study was to examine the effect of exchange rate (Cedi to
the Dollar) movement on the prices of domestic goods and services in Ghana using
time series over the period 2005 to 2015. The quest to conduct this study was to
enable an estimation of the rate of any pass-through, and its proportionality to
inflation levels in Ghana using exchange rate, interest rates, and monetary policy
rate. The study was to establish the effect of exchange rate, interest rates and
monetary policy rates on domestic price levels. The study employed a causal
research design. The data set for all variables were sourced from World Bank-World
Development Indicators Database (Online Edition). Vector Auto Regressive (VAR)
model was used in estimating the significant positive effects of the independent
variables (exchange rates, interest rate and monetary policy rate) on the dependent
variable (inflation rate). The study revealed that there was a statistically significant
positive effect of exchange rate, interest rate, and monetary policy rate on domestic
price levels. In conclusion, when the cedi depreciates against the dollar, inflation
hikes will be experienced. It is recommended that Bank of Ghana ensure a stable
exchange rate in order to reduce its potential effect on inflation in Ghana
