Mary Ann Yeboah¹, David Benteh², Francis Yao Anyan^1,, Philip Nyarko Kwakye², Kofi Mensah², Sulemana Mahawiya¹

This research focused on comparing volatility of Consumer Price Index and Exchange Rate of Ghana using GARCH models. The main purpose of the study was to establish a relationship between the Consumer Price Index (CPI) and the Exchange Rate and thereby finding the best modeling for volatility of the CPI and Exchange Rate of Ghana. Simple linear regression analysis was used to describe the relationship between CPI and the Exchange Rate. The results showed that CPI has a positive significance influence on Exchange Rate in both the ARCH and GARCH model fits of the data. The comparison test of symmetric (GARCH and GARCH-in-Mean (GARCH-M models) and asymmetric GARCH models (exponential GARCH (EGARCH), Glosten, Jagannathan, and Runckle GARCH (GJR-GARCH or TGARCH) and the Power GARCH (PGARCH models)) were the methods used in the analysis. The results showed that EGARCH models produced the highest log-likelihood value compared with the other asymmetric models in both data. Hence, this study concludes that exponential GARCH (EGARCH) is the best model for modeling CPI volatility and Exchange Rate volatility of Ghana. This study only compared the different GARCH (1, 1) models however could not consider the GARCH models at different lags and this is recommended for further studies.

CPI, exchange rate, volatility, GARCH, EGARCH