Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis / Leonce Ndikumana.

Ndikumana, Léonce.
Washington, D.C. : The World Bank, 2021.
Government document
1 online resource (36 pages)
Policy research working papers
World Bank e-Library

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World Bank working papers.
Local subjects:
Agriculture. (search)
Cereal Output Gap. (search)
Exchange Rate. (search)
External Shock. (search)
Fiscal and Monetary Policy. (search)
Fiscal Policy. (search)
Food Price. (search)
Food Security. (search)
Inflation. (search)
Macroeconomics and Economic Growth. (search)
Monetary Policy. (search)
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This study empirically investigates the drivers of inflation in Ethiopia using monthly data from July 1998 to September 2020. It explores short-run and long-run effects of domestic and external determinants of inflation-including demand-side, supply-side, and structural factors-using the cointegration and vector error correction methodology. Four measures of inflation are considered: cereals, food, nonfood, and all items consumer price index inflation. A key contribution to the existing literature is the investigation of the role of the fiscal sector in modeling inflation, a topic that has been neglected in the existing studies on inflation in Ethiopia. The empirical results show that disequilibria in the monetary sector, grains sector, and food markets have long-run effects on inflation. In the short run, inflation is driven by structural factors (notably, cereal output gaps and imported inflation) as well as demand-side factors (notably, money growth and public sector borrowing). The results hold when the analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fund program in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policy reforms in Ethiopia.
Getachew Kelbore, Zerihun.
Mulugeta, Samuel.
Nkurunziza, J. D.
Sánchez-Martín, Miguel Eduardo.
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Print Version: Ndikumana, Leonce Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia: New Empirical Evidence from Time Series Analysis
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