Exploring the link b/n exchange market pressure and monetary policy in Ethiopia

Course ID
Ethiopian Economics Association (EEA)
Abebe Deressa

The level and movements in the exchange rate have been a matter of policy concern for central banks of most countries, including that of Ethiopia, as erratic changes in the exchange rate not only undermine the goal of price stability but also reduce real output, trade, capital flows and investment. These considerations often prompt central banks to intervene in the foreign exchange market so as to influence exchange rate developments. Of course, exchange rate policy is a key tool in the economic management of the economy, where low inflation and international competitiveness have become major policy targets.A review of the Ethiopian foreign exchange market reveals that the market was characterized by depreciation pressures. For a country adopting a managed floating exchange rate regime and faced with exchange rate pressures, policy options in the short run are only limited to monetary policy as certain fundamental domestic remedies, like fiscal adjustment and financial sector reform, may require time to implement (often under political stress).A simple monetary model of exchange market pressure states that for a given rate of growth of world prices, real income and the money multiplier, an increase in domestic credit (expansionary monetary policy) will result in an equi-proportionate loss in foreign reserves, or an equi-proportionate depreciation of the exchange rate, or some combination of the two. The objective of this study is, therefore, to examine empirically the impact of monetary policy on exchange market pressure (EMP) in Ethiopia using the single equation and VAR model

Corporate Author: Getnet Alemu and Edilegnaw Wale (Editor) & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Publisher: Ethiopian Economic Association (EEA)
ISBN/ISSN: 978-99944-54-05-1
Primary Descriptors: exchange market

Secondary Descriptor: monetary policy

Geographic Descriptors: Ethiopia
Cataloge Date: 02/27/2013
Broad Subject heading: Finance and Development
Call Number: 330.963 PRO 2009
Serial Key Title: Proceedings of the Fifth International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: I
Publication date: 2013-12-27 23:09:00
Forum or Discussion date: 2013-02-27 15:02:12
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Abebe Deressa

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