TITLE:
Quantitative Easing: Money Supply and Commodity Prices of Oil, Gold, and Cocoa in Ghana
AUTHORS:
Samuel Kwaku Obeng, Samuel Bassah Kofi Quansah, Theresa Dowetin, Ampem Darko Nsiah, Ezekiel Nii Noye Nortey, Ebenezer Okyere
KEYWORDS:
Quantitative Easing, Money Supply, Cocoa, Gold, Crude, VECM
JOURNAL NAME:
Open Journal of Statistics,
Vol.13 No.5,
September
8,
2023
ABSTRACT: This
study investigates the dynamic relationships between the money supply (M2) and
key commodity prices (Cocoa, Gold, and Crude) in the context of Ghana. Utilizing Vector Error Correction Model
(VECM) analysis, we analyze the short-term and long-term Granger causality
relationships among these variables, aiming to shed light on the
potential linkages between monetary policy and commodity markets. The analysis
covers the period from December 1999 to April 2023, using lag structures of 1
and 8 to capture both short-term and more enduring effects. Our findings reveal
significant Granger causality relationships
between the money supply and various commodities, with nuanced patterns
emerging across different lags. In the short-run, our results suggest
bidirectional causal relationships between COCOA and M2, CRUDE and M2, and GOLD and M2. Additionally, M2 Granger
causes changes in COCOA, CRUDE, and GOLD. However, the causal relationship
between COCOA and GOLD appears to be unidirectional, with COCOA not
significantly Granger causing changes in GOLD. The short-term findings
highlight the intricate interplay between monetary policy and commodity
markets. In the long-run (lag 8), our analysis unveils robust Granger causality
relationships between the variables. Past
values of COCOA, CRUDE, and GOLD Granger cause changes in M2, indicating
a notable influence of commodity markets on the money supply. Similarly, M2
Granger causes changes in CRUDE and GOLD. Notably, the findings underscore a
more comprehensive and intertwined relationship between monetary policy and
commodity prices in the long-run. Based on these results, we derive several
policy implications. Policymakers should
carefully consider the potential impact of monetary policy decisions, such as
quantitative easing, on commodity markets and price dynamics. Measures to
stabilize commodity prices, promote export diversification, manage inflation
expectations, and enhance economic resilience are recommended. Additionally,
effective data monitoring, international collaboration, and proactive
risk management strategies are essential components for navigating the complex
interactions between monetary policy and commodity markets. This study
contributes to a deeper understanding of the intricate connections between
monetary policy and commodity prices in Ghana, offering insights for
policymakers, researchers, and stakeholders seeking to promote sustainable
economic growth and stability. Further research can delve into the mechanisms
underlying these relationships and explore their broader implications for trade
balances, economic performance, and policy formulation.