Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis

This study empirically investigates the drivers of inflation in Ethiopia using monthly data from July 1998 to September 2020. It explores short-run and long-run effects of domestic and external determinants of inflation—including demand-side, suppl...

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Main Authors:	Ndikumana, Léonce, Nkurunziza, Janvier D., Sanchez Martin, Miguel Eduardo, Mulugeta, Samuel, Getachew Kelbore, Zerihun
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2021
Subjects:	INFLATION MONETARY POLICY FISCAL POLICY EXCHANGE RATE EXTERNAL SHOCK FOOD PRICE CEREAL OUTPUT GAP
Online Access:	http://documents.worldbank.org/curated/undefined/889061639421282989/Monetary-Fiscal-and-Structural-Drivers-of-Inflation-in-Ethiopia-New-Empirical-Evidence-from-Time-Series-Analysis http://hdl.handle.net/10986/36739

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spelling	okr-10986-367392021-12-17T05:10:54Z Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis Ndikumana, Léonce Nkurunziza, Janvier D. Sanchez Martin, Miguel Eduardo Mulugeta, Samuel Getachew Kelbore, Zerihun INFLATION MONETARY POLICY FISCAL POLICY EXCHANGE RATE EXTERNAL SHOCK FOOD PRICE CEREAL OUTPUT GAP This study empirically investigates the drivers of inflation in Ethiopia using monthly data from 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 consumer price index 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 the analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fund program in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policy reforms in Ethiopia. 2021-12-16T16:27:16Z 2021-12-16T16:27:16Z 2021-12 Working Paper http://documents.worldbank.org/curated/undefined/889061639421282989/Monetary-Fiscal-and-Structural-Drivers-of-Inflation-in-Ethiopia-New-Empirical-Evidence-from-Time-Series-Analysis http://hdl.handle.net/10986/36739 English Policy Research Working Paper;No. 9881 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Africa Eastern and Southern (AFE) Ethiopia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	INFLATION MONETARY POLICY FISCAL POLICY EXCHANGE RATE EXTERNAL SHOCK FOOD PRICE CEREAL OUTPUT GAP
spellingShingle	INFLATION MONETARY POLICY FISCAL POLICY EXCHANGE RATE EXTERNAL SHOCK FOOD PRICE CEREAL OUTPUT GAP Ndikumana, Léonce Nkurunziza, Janvier D. Sanchez Martin, Miguel Eduardo Mulugeta, Samuel Getachew Kelbore, Zerihun Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
geographic_facet	Africa Africa Eastern and Southern (AFE) Ethiopia
relation	Policy Research Working Paper;No. 9881
description	This study empirically investigates the drivers of inflation in Ethiopia using monthly data from 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 consumer price index 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 the analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fund program in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policy reforms in Ethiopia.
format	Working Paper
author	Ndikumana, Léonce Nkurunziza, Janvier D. Sanchez Martin, Miguel Eduardo Mulugeta, Samuel Getachew Kelbore, Zerihun
author_facet	Ndikumana, Léonce Nkurunziza, Janvier D. Sanchez Martin, Miguel Eduardo Mulugeta, Samuel Getachew Kelbore, Zerihun
author_sort	Ndikumana, Léonce
title	Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
title_short	Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
title_full	Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
title_fullStr	Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
title_full_unstemmed	Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis
title_sort	monetary, fiscal, and structural drivers of inflation in ethiopia : new empirical evidence from time series analysis
publisher	World Bank, Washington, DC
publishDate	2021
url	http://documents.worldbank.org/curated/undefined/889061639421282989/Monetary-Fiscal-and-Structural-Drivers-of-Inflation-in-Ethiopia-New-Empirical-Evidence-from-Time-Series-Analysis http://hdl.handle.net/10986/36739
_version_	1764485805414285312

Monetary, Fiscal, and Structural Drivers of Inflation in Ethiopia : New Empirical Evidence from Time Series Analysis

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