Effects of Monetary Policy on Inflation in Ethiopia. ARDL Co-Integration

Effects of Monetary Policy on Inflation in Ethiopia. ARDL Co-Integration
Author: Gediyon Bekele Moliso
Publisher: GRIN Verlag
Total Pages: 30
Release: 2022-09-12
Genre: Business & Economics
ISBN: 3346721086
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Academic Paper from the year 2022 in the subject Economics - Monetary theory and policy, , language: English, abstract: The goal of this research is to close lack of sufficient, contemporary and comprehensive studies on the topic under study and gain a better understanding of the relationship between monetary policy and Ethiopian inflation. The paper is organized as follows. After this introduction, the following section reviews the relevant literature, both theoretical and empirical. After this review, the methodological framework is presented. A series of test are show to assess the sensibility of the model. The discussion of the results is presented. Finally, some concluding remarks are shown. The monetary policy pursued by a country's Central Bank has a significant impact on the country's economic and financial status. It is commonly acknowledged that maintaining price stability through monetary policy can contribute to long-term growth. When the rate of inflation is low enough, consumers and companies do not have to consider it when making daily decisions, according to Christiano and Fitzgerald. The method, through which a country's monetary authority manages the supply of money, frequently by targeting an interest rate in order to promote economic growth and stability, is known as monetary policy. It is essentially a set of actions performed by monetary authorities, usually the central bank, to control and regulate the supply of money to the public as well as the flow of credit in order to achieve preset macroeconomic objectives. Its stated objective is to maintain relatively steady pricing and low unemployment. All methods of monetary policy, in reality, require changing the amount of base currency in circulation. Open market operations are the open sales and purchases of (government-issued) debt and credit instruments that change the liquidity of the base currency. The monetary authority's constant market operations influence the supply of currency, which has an impact on other market variables including short-term interest rates and the exchange rate.

Effects of Monetary Policy on International Trade in Ethiopia

Effects of Monetary Policy on International Trade in Ethiopia
Author: Gediyon Bekele Moliso
Publisher: GRIN Verlag
Total Pages: 41
Release: 2021-10-25
Genre: Business & Economics
ISBN: 3346521524
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Academic Paper from the year 2021 in the subject Economics - Monetary theory and policy, grade: A, , language: English, abstract: This study examined the effect of monetary policies on Total Trade (proxy of international trade) in Ethiopia between 1989 to 2019.International trade was captured using Total Trade (proxy of international trade) while the independent variables that described the various macroeconomic policies in Ethiopia were money supply, exchange rate, real lending rate and inflation rate. Time series data on the variables of the study was gotten from Annual reports of the National Bank of Ethiopia (NBE) from 1989-2019. The secondary data was analyzed using E-views 9.0 software. A model was formulated for the study. The Augmented Dickey Fuller (ADF) stationary test showed that the variables in the study were stable at both levels and at first difference. The regression of the independent variables with Total Trade (proxy of international trade) showed the existence of a long run relationship. Using the Autoregressive Distribute Model (ARDL), the empirical results money supply exerts a significant positive effect on Total Trade (proxy of international trade) in the long run while real lending rate and inflation rate exerts a significant negative effect on Total Trade (proxy of international trade) in the long run and Total Trade (proxy of international trade) one period lag of the variable significantly affects the Total Trade (proxy of international trade) in the short run. LagTT or D(LTT(-1)), a one percent increase in expectation push Total Trade (proxy of international trade) by 51% in short run. This result is similar to the theory of adaptive expectations, they states that individuals will form future expectations based on past events. The study thus concluded that the monetary policy channels through which Total Trade (proxy of international trade) in Ethiopia can be influenced are money supply, lending rate and inflation rate. The study testes all the diagnostic test like serial correlation, Normality, heteroschedasticity and stability. The estimate of the speed of adjustment coefficient found in this study indicates that about a 75% of the variation in the Total Trade (proxy of international trade) from its equilibrium level is corrected within a year.

Effects of Monetary Policy on Inflation in Ethiopia

Effects of Monetary Policy on Inflation in Ethiopia
Author: Gediyon Bekele Moliso
Publisher:
Total Pages: 0
Release: 2022
Genre:
ISBN:
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The main objective of this study is to investigate the effect of monetary policy on inflation in Ethiopia for using annual time-series data from 1988 to 2021. To achieve the goal of this study, the Autoregressive Distributed Lag (ARDL) Approach. The finding of the Bounds test shows that there is a stable long-run relationship in all variables. The empirical results suggest that money supply, the openness of trade and the real effective exchange rate exerts a positive and statistically significant effect on inflation, in the long run, and real gross domestic product and real lending rate have a negative and statistically significant effect on inflation in the long run. The estimate of the speed of adjustment coefficient found in this study indicates that about 21.4 per cent of the variation in the inflation from its equilibrium level is corrected within a year. Based on the findings of the empirical analysis, the study recommends that Spends the money to the economy should not exceed the country's production of goods and services. Government should implement major changes to ensure that more of the money in circulation is in the productive sector.

The Impact of Fiscal Policy Shocks on Ethiopian Economy

The Impact of Fiscal Policy Shocks on Ethiopian Economy
Author: Asmare Workneh Alamrew
Publisher: GRIN Verlag
Total Pages: 77
Release: 2018-12-18
Genre: Business & Economics
ISBN: 3668856044
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Master's Thesis from the year 2017 in the subject Economics - Finance, , language: English, abstract: Fiscal policy is one of the macroeconomic policies which play a decisive role on economic growth; especially in developing economies which have many economic and social bottlenecks. This study examines the impacts of fiscal policy shock on Ethiopian economy; through applying static compatible general equilibrium (Stage CGE) model which allows quantifying the impacts of fiscal instrument shock on the economy and welfare of households. Fiscal problems like small tax revenue and consistent fiscal deficit put its own major influences on developing economies performance. The study uses 2009/10 Ethiopian SAM as an input for the model and applies three simulation scenarios. In the first simulation, tariff cut affects GDP and household welfare negatively. In the second simulation increasing direct tax has negative impact on total GDP. The other alternative simulation scenario is reducing direct tax and which give a positive change on the total GDP. In general, the government should reduce direct tax to improve economic performance. In addition, liberalizing tariff is not advisable for Ethiopian economy.

The Federal Democratic Republic of Ethiopia

The Federal Democratic Republic of Ethiopia
Author: International Monetary Fund
Publisher: International Monetary Fund
Total Pages: 51
Release: 2008-07-31
Genre: Business & Economics
ISBN: 1451812817
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This Selected Issues paper examines the causes of recent inflation in Ethiopia and discusses possible policy responses. Inflation in Ethiopia has reached a historical peak. Following a drought-related surge of food prices in 2003, it receded to single digits but soon turned back up in 2004 and gradually increased. The paper provides an overview of recent inflation developments, and explores the factors contributing to recent inflation, based on fresh studies and the review of current monetary and external developments. The paper also lays out cross-country analysis with countries experiencing high inflation.

Inflationary Expectations in Ethiopia

Inflationary Expectations in Ethiopia
Author: Josef Ludger Loening
Publisher:
Total Pages: 0
Release: 2009
Genre:
ISBN:
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We analyze short-run dynamics of inflation in Ethiopia, using a parsimonious error-correction model fitted with monthly observations. Our findings show that increased money supply and the nominal exchange rate significantly affect inflation in the short-run. Agricultural output shocks, proxied by a cereal-weighted agricultural production index, are also important. By providing an accommodative financial environment, our findings suggest that monetary policy in Ethiopia triggers price inertia, which has large and persistent effects. A simulation suggests that monetary policy alone may be unfeasible to control inflation effectively. To circumvent an extreme tightening with discouraging impacts on growth, additional measures are needed. These should improve the transparency and credibility of monetary policy, and reduce structural barriers that affect price formation and market efficiency.

The effect of Government budget deficit on monetary aggregates and the foreign sector. The case of Ethiopia

The effect of Government budget deficit on monetary aggregates and the foreign sector. The case of Ethiopia
Author: Tewolde Girma Hailemikael
Publisher: GRIN Verlag
Total Pages: 24
Release: 2017-03-20
Genre: Political Science
ISBN: 366841887X
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Research Paper (postgraduate) from the year 2013 in the subject Business economics - Economic Policy, grade: Very good, Bahir Dar University, course: Economic Policy analysis, language: English, abstract: The main objective of the study is to examine the effect of budget deficit on monetary aggregates and the foreign sector of Ethiopia using the Vector Error Correction Model over the period 1970/71 to 2010/11. Estimation result shows the existence of a fairly significant relationship between fiscal deficit, monetary aggregates and the foreign sector in Ethiopia. Budget deficit is at the root of monetary expansion. Monetary expansion intern contributes positively to rising inflation and overvalued exchange rate. The Inflation and overvalued exchange rate intern contributes to the low performances of the foreign sector through adversely affecting export incentive. Fiscal deficit for small open economy like Ethiopia is also sign of stimulated domestic import demand, because government not only spends on goods and services produced in domestic economy. Thus, the result is in favor of the twin deficit hypothesis therefore fiscal restraint bucked by export diversification will improve the performance of the foreign sector and status of inflation.

The relationship of inflation and economic growth in Ethiopia

The relationship of inflation and economic growth in Ethiopia
Author: Deseke Kebede
Publisher: GRIN Verlag
Total Pages: 69
Release: 2017-11-28
Genre: Business & Economics
ISBN: 3668582432
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Research Paper (undergraduate) from the year 2017 in the subject Economics - Economic Cycle and Growth, grade: 1, , language: English, abstract: The purpose of the study is to examine the relationship between inflation and economic growth in Ethiopia over the period of 1991/92- 2014/15 by using data at quarter base. The study was employed Johansen method of co-integration and vector error correction model and a technique of conditional least square. The result shows that both in long-run and short-run the relationship between inflation and economic growth is positive. Despite to this, the granger causality test tells us bi- directional causation between these two variables. The result also revealed that threshold level of inflation beyond on which inflation negatively affects economic growth of Ethiopia is 5 percent. Therefore, co-ordination between macro- economic policy makers is vital and should have to raise their hands and put their eyes on measures that keep down inflation below 5 percent to have sustainable economic growth in the country.