Monetary, fiscal, and structural drivers of inflation in Ethiopia: new empirical evidence from time series analysis

Léonce Ndikumana, Janvier D. Nkurunziza, Miguel Eduardo Sánchez Martín, Samuel Mulugeta and Zerihun Getachew Kelbore

Review of Development Economics, 2023, vol. 27, issue 2, 924-962

Abstract: This study empirically investigates the drivers of inflation in Ethiopia using monthly data over the period 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 Consummer Price Index (CPI) 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 analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fund (IMF) program in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policy reforms in Ethiopia.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/rode.12958

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:rdevec:v:27:y:2023:i:2:p:924-962

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1363-6669

Access Statistics for this article

Review of Development Economics is currently edited by E. Kwan Choi

More articles in Review of Development Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().