The effect of crude oil price shocks on macroeconomic stability in Ghana

The paper studies the effects of underlying shocks of crude oil price movements on the stability of macroeconomic aggregates in Ghana. We develop a structural vector autoregressive to disentangle the sources that have driven shocks in crude oil market and estimate the effects of the identified shocks on macroeconomic aggregates and on three bilateral exchange rates in Ghana. In addition, we investigate the extent of transmission of the identified shocks on food and non-food price levels. The findings show that shocks by oil supply and demand specific have significant effect on real GDP. Further, the identified shocks have weighty effect on Ghana/Euro bilateral exchange rate. The findings also suggest that all the identified structural shocks have significant effects on food and non-food inflation. This implies that oil market shocks are detrimental to food and non-food inflation in Ghana.