What Causes Inflation in a Post Communist Economy? Evidence from Ethiopia

Dejene Mamo Bekana

Romanian Economic Journal, 2016, vol. 19, issue 61, 3-46

Abstract: This paper examines the determinants of inflation for a post communist economy, in the long run as well as in the short run, using time series evidence from Ethiopia and applying the Johnson co integration and Error Correction Mechanisms. A vivid observation of the results shows that the short run determinants of inflation are broad money supply, growth of domestic gross product, real interest rate, budget deficit, Exchange rate, inflation expectation and world price movements. The result of the long run model after co integration is proved using the residual based ducky fuller test and the Johnson co integration tests revealed that broad money supply, government budget deficit, exchange rate and inflation expectation are found to be the major determinants of inflation. The result shows that domestic gross product growth rate has no effect on inflation. To curb inflation, therefore, policy makers need to implement prudential fiscal and monetary policy tools. Inflation expectations need to be tackled by way of transparent and well informed government policies to change consumer perception. Concerning this, it is important to consider targeting monetary and fiscal policy variables and appropriately implanting the set targets.

Keywords: Ethiopia; Headline CPI Inflation; money supply; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E30 E31 E39 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rejournal.eu/sites/rejournal.versatech. ... -21/3385/1bekana.pdf (application/pdf)

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:rej:journl:v:19:y:2016:i:61:p:3-46

Access Statistics for this article

Romanian Economic Journal is currently edited by Ioan Popa, PhD

More articles in Romanian Economic Journal from Department of International Business and Economics from the Academy of Economic Studies Bucharest Contact information at EDIRC.
Bibliographic data for series maintained by Radu Lupu ().