Inflationary expectations in ethiopia: some preliminary results

• LOENING, Josef ^[1] ; GOUNDER, Rukmani ^[2] ; TAKADA, Hideki ^[3]
  1. [1] University of Göttingen

     University of Göttingen

     Landkreis Göttingen, Alemania

     
  2. [2] Massey University

     Massey University

     Nueva Zelanda

     
  3. [3] Columbia University

     Columbia University

     Estados Unidos

     

  Mostrar afiliaciones +
• Localización: Applied econometrics and international development, ISSN 1578-4487, Vol. 8, Nº. 2, 2008, págs. 159-176
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • We analyze short-run dynamics of inflation in Ethiopia, using a parsimonious errorcorrection model fitted with monthly observations. Our findings show that increased money supply and the nominal exchange rate significantly affect inflation in the shortrun. Agricultural output shocks, proxied by a cereal-weighted agricultural production index, are also important. By providing an accommodative financial environment, our findings suggest that monetary policy in Ethiopia triggers price inertia, which has large and persistent effects. A simulation suggests that monetary policy alone may be unfeasible to control inflation effectively. To circumvent an extreme tightening with discouraging impacts on growth, additional measures are needed. These should improve the transparency and credibility of monetary policy, and reduce structural barriers that affect price formation and market efficiency.