Modelling the dynamic connectedness among commodity prices, banking sector’s financial soundness, and macroeconomic variables in Ghana

Abstract

Abstract The study explores the dynamic connectedness among international commodity price, banking sector’s financial soundness (BSFSI) and some selected macroeconomic variables in Ghana. To achieve this, the study employed the TVP-VAR connectedness and a robustness technique: Wavelet Multiple. We utilise monthly data of three (3) commodity prices (cocoa, gold and crude oil), seven BsFSI and six (6) macroeconomic variables in Ghana. In addition, the global economic policy uncertainty (GEPU) was used as a control variable as a gauge of external shock. The monthly data spanned January 2007 to March 2022 to include some major economic, political and health events, yielding 183 datapoints. We found strong degree of connectedness among international commodity prices, BsFSI, and macroeconomic variables in Ghana at an estimate of 68.36% for the total connectedness index. However, the connectedness value changes across time which corroborates the adaptive market hypothesis. We demonstrate strong evidence of interdependence and contagion among the variables. Findings from the study requires that the government should broaden its production and export base to have more diverse sources of economic growth, enabling it to manage the erratic nature of earnings tied to commodities exports on the financial stability of Ghana.