Empirical investigation of exchange rate transmission into general inflation level in Ethiopia – SVAR approach

Henok Ezezew Sheferaw and Kalid Wendimnew Sitotaw

Cogent Business & Management, 2023, vol. 10, issue 2, 2243662

Abstract: Examining the extent of exchange rate pass-through (ERPT) to domestic prices has substantial significance for policymaking given the ongoing devaluation of the Ethiopian currency. This study aimed to investigate the impact of exchange rate pass-through (ERPT) on domestic prices in Ethiopia between 1975 and 2020, using recursive structural vector autoregressive (SVAR) analysis. The results revealed that a unit change in the nominal effective exchange rate (appreciation) was associated with a reduction of 0.059 in consumer prices after 1 year, indicating that ERPT to domestic inflation in Ethiopia is significant, but incomplete and temporary. Additionally, impulse response and variance decomposition analyses revealed that government expenditure and international energy prices had an expanding effect on domestic prices. Therefore, the policy implications of the study include measures to stabilize and control the exchange rate, promote domestic production, reduce reliance on imported goods, and explore alternative energy sources and transportation methods.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/23311975.2023.2243662 (text/html)
Access to full text is restricted to subscribers.

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:taf:oabmxx:v:10:y:2023:i:2:p:2243662

Ordering information: This journal article can be ordered from
http://cogentoa.tandfonline.com/journal/OABM20

DOI: 10.1080/23311975.2023.2243662

Access Statistics for this article

Cogent Business & Management is currently edited by Len Tiu Wright and Tahir Nisar

More articles in Cogent Business & Management from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().