Price Dynamics in Ethiopia: var Modeling Approach

Course ID
Ethiopian Economics Association (EEA)
Solomon Mosisa Gofere

Inflation has remained the most important macroeconomic problem of Ethiopia since 2002/2003. The promise of the Growth and Transformation Plan (GTP) to keep inflation to a single digit is yet to be seen notwithstanding the various stabilization policies implemented. This implies that there is a need to adopt a more comprehensive approach to analyze determinants of inflation in Ethiopia to inform policy making if price stability has to be ensured. Accordingly, this paper analyzes the determinants of inflation in Ethiopia using the National Bank of Ethiopia (NBE) annual data between 1975 and 2011. In doing so, price is modeled in Cobb-Douglas type price equation where overall price level is a weighted average of the price of tradable and non-tradable goods. A comprehensive empirical model is estimated using VAR technique to uncover the possible determinants of inflation in Ethiopia. Furthermore, simulation exercises are made to assess how shocks to macroeconomic variables affect the path of price formations in Ethiopia. The result indicates that structural and external factors are more important determinants of inflation in the short-run while macroeconomic factors have the power to trigger price increase in the long run.

Corporate Author:Demirew Getachew; Getenet Alemu; Worku Gebeyehu (Editors) and Ethiopian Economic Association
Publisher:Ethiopian Economic Association
Primary Descriptors:Inflation

Secondary Descriptor:Econometric Modeling and VAR

Geographic Descriptors:Ethiopia
Broad Subject heading:Macroeconomic Policies
Call Number:330.963 PRO 2013
Serial Key Title:Proceeding of the Tenth International Conference on the Ethiopian Economy
Publication catagory:International Conference
Content type:EEA Publication
Publication date:2013-06-03 00:00:00
Conference Place: EEA Multi-Purpose Building Conference Hall, Addis Ababa
Place of publication: Addis Ababa
Type of material:Book
Current frequency: Annually
Author: Solomon Mosisa Gofere
Conference date: July 19 – 21, 2012