Modeling Gdp Using Vector Autoregressive (Var) Models: An Empirical Evidence from Ghana.
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Date
2015-06
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University of Ghana
Abstract
This study used the VAR models to model the Growth Domestics Products (GDP) of Ghana with other two selected macroeconomic such as inflation and real exchange rate for the period of 1980 to 2013. Data were taken from the World Bank’s World Development Indicators and Bank of Ghana. This study employed co-integration test and vector error correction models (VECM) to examine both long-run and short-run dynamic relationships between the GDP and the macroeconomic variables. The time series properties of the data were, first, analysed using the Augmented Dickey-Fuller (ADF) test. The empirical results derived indicate that all the variables were stationary after their first differencing; i.e. variables are integrated of order one, I(1). The study further established that there is cointegration between macroeconomic variables and GDP in Ghana indicating long run relationship. The VECM (3) model was appropriately identified using AIC information criteria with co-integration relation of exactly one .The above long term relation indicates that Real Exchange Rate have a negative effect on GDP whiles Inflation (CPI) showed a positive effect on GDP. The study further investigated the causal relationship using the Granger Causality analysis, which indicates a uni–directional causal relationship between GDP and Real Exchange rate and bi-directional causal relationship between GDP and Inflation rate at 5%. Hence the findings that inflation has a long-run relationship between GDP growth and influences it positively in Ghana, government should invest in local industries to boost domestic production of tradable which would maintain higher export volumes. This will help reduce Exchange rate and hence impact on inflation, thereby increasing GDP growth rate.
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Thesis (MPhil.) - University of Ghana, 2015