Inflationary Expectations in Ethiopia: Some Preliminary Results

27 Pages Posted: 24 Dec 2008

See all articles by Josef Ludger Loening

Josef Ludger Loening

University of Goettingen (Gottingen) - Ibero-America-Institute for Economic Research

Hideki Takada

affiliation not provided to SSRN

Date Written: December, 22 2008

Abstract

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.

Keywords: Ethiopia, Error-correction Model, Inflation, Inertia

JEL Classification: E31, E37, E52, O55

Suggested Citation

Loening, Josef Ludger and Takada, Hideki, Inflationary Expectations in Ethiopia: Some Preliminary Results (December, 22 2008). Applied Econometrics and International Development, Vol. 8, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1319400

Josef Ludger Loening (Contact Author)

University of Goettingen (Gottingen) - Ibero-America-Institute for Economic Research ( email )

Oeconomicum II/99
Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49 (551) 39-8172 (Phone)
+49 (551) 39-8173 (Fax)

HOME PAGE: http://www.iai.wiwi.uni-goettingen.de

Hideki Takada

affiliation not provided to SSRN ( email )

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