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Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis

Received: Oct. 28, 2022    Accepted: Nov. 22, 2022    Published: Feb. 27, 2023
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Abstract

In the last decades, Ethiopia has been one of the fastest growing non-oil producing countries in the world. Along with the economic growth, inflation has been rising. Therefore, the main objective of this study was to identify the major macroeconomic factors affecting inflation in Ethiopia for the year 1981 - 2020. Secondary data were collected from World development indicators database. Both econometrics and descriptive statistics were used for data analysis. The findings of the descriptive result indicated that for forty years the mean official exchange rate was 10.13birr/dollar with standard deviation of 8.6Birr/dollar. The mean inflation rate for Ethiopia was 9.44% with a minimum of -9.81% and a maximum value of 44.39%. Growth of GDP was 5.91% with standard deviation of 6.45%. In order to show long run and short run relationship between variables, vector error correction regression model was applied. Before estimation, stationery test was conducted using dickey fuller test. Inflation rate and growth of GDP were stationary at level while exchange rate and unemployment rate were non-stationary. Therefore, vector error correction model was justifiable. The result of vector error correction model confirmed that there is a significant relationship between devaluation of exchange rate and inflation. Therefore, in order to control inflationary pressure appropriate polices must be designed which compromises unemployment, economic growth and exchange rate regimes.

DOI 10.11648/j.rd.20230401.13
Published in Research & Development ( Volume 4, Issue 1, March 2023 )
Page(s) 13-19
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Inflation, Vector Error Correction Model, Ethiopia

References
[1] EEA (2021). Ethiopian Economics Association, Economic Development, Population Dynamics, and Welfare Editors: Mengistu Ketema and Getachew Diriba, Addis Ababa, Ethiopia https://eea-et.org/wp-content/uploads/2021/06/SEE-Book-2020_2021.pdf
[2] Girma Mulugeta Emeru (2020). The Determinants of Inflation in Ethiopia: A Multivariate Time Series Analysis. Journal of economics and sustainable development, Vol 11, No 21 (2020) https://www.iiste.org/Journals/index.php/JEDS/article/view/54799/0
[3] Gujarati, D. N (2004): Basic Econometrics, 4th Ed., McGraw-Hill Companies.
[4] Mankiw, N. Gregory (2016), principles of Macroeconomics, 8th edition, printed in the United States of America.
[5] NBE, (2021) National Bank of Ethiopia, Ethiopia: Macroeconomic and Social Indicators. https://nbe.gov.et/annual-report/
[6] Mebtu Melaku (2020). Determinants of Inflation in Ethiopia. Academic Journal of Research and Scientific Publishing Volume 2, Issue 18, Publication Date: 5-10-2020, www.ajrsp.com 68 ISSN: 2706-6495.
[7] Teamrat Kahssay (2017). Determinants of Inflation in Ethiopia: A Time-Series Analysis, Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 8, No. 19, 2017.
[8] Teshale D. Bedada & Wondaferahu M. Demissie & Endeg T. Wolde, 2020. "Determinants of Inflationary Experience in Ethiopia," Journal of Economics and Financial Analysis, Tripal Publishing House, Vol. 4 (1), Pages 15-54. Doi: 10.1991/Jefa.V4i1.A31.
[9] Wondimu Ereda Melaku. (2020) Determinants of Inflation in Africa: A Systematic Review. International Journal of Management and Fuzzy Systems. Vol. 6, No. 4, 2020, pp. 59-63. doi: 10.11648/j.ijmfs.20200604.11
[10] Yen Chee Lim and Siok Kun Sek, (2015). An Examination on the Determinants of Inflation, journal of Economics, Business and Management, Vol. 3, No. 7, July 2015.
[11] Yi Wen, and Mingyu Chen, (2012) Okun’s Law: A Meaningful Guide for Monetary Policy? Economic SYNOPSES short essays and reports on the economic issues of the day, 2012 ■ Number 15, https://files.stlouisfed.org/files/htdocs/publications/es/12/ES_2012-06-08.pdf
[12] Tadesse Wudu Abate. (2020) Macro-economic Determinants of Recent Inflation in Ethiopia. Journal of World Economic Research. Vol. 9, No. 2, 2020, pp. 136-142. doi: 10.11648/j.jwer.20200902.17
[13] EEA (2001) Ethiopian economic Association/ Ethiopian economic policy research Institute (2001). Report on the Ethiopian economy volume V 2005/06. Addis Ababa, Ethiopia.
[14] Winfred Nkirote Kirimi (2014). The Determinants of Inflation in Kenya (1970 – 2013), Msc Thesis, University Of Nairobi, Kenya.
[15] Ferdinand Ahiakpor (2014). Rethinking About Determinants Of Inflation in Ghana: Which Econometric Model Tell The True Story European Journal Of Business And Management Www.Iiste.Org. ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online), Vol. 6, No. 6, 2014.
[16] Semeneh Bessie Desta (2016). Inflation and the Role of Macroeconomic Policy in Ethiopia Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol. 7, No. 7, 2016.
[17] Moses K Macharia and Aggrey Otieno (2015) Effect of Inflation on Unemployment In Kenya, International Journal of Science and Research (IJSR), Volume 6 Issue 6, June 2017, www.ijsr.net
[18] Jackman, Richard (1981) The Economics of Inflation, ISBN 0855204117 (ISBN13: 9780855204112).
[19] Alemayehu Geda and Kibrom Tafere (2009) The Galloping Inflation in Ethiopia: A Cautionary Tale for Aspiring ‘Developmental States’ in Africa, October 2009, Conference: University of Oxford, Center for Study of African Economies At: Oxford, UK.
[20] Abdurahman Mohammed (2022). Food Inflation Stands High in Ethiopia despite Policy Measures to Stabilize Prices in Ethiopia, Report Category: Agricultural Situation, Agriculture in the News, Agriculture in the Economy, National Plan, Policy and Program Announcements, Report Number: ET2022-0011, SDA, United states department of agriculture and Global information network.
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    Gemechu Mulatu Kerorsa. (2023). Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis. Research & Development, 4(1), 13-19. https://doi.org/10.11648/j.rd.20230401.13

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    ACS Style

    Gemechu Mulatu Kerorsa. Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis. Res. Dev. 2023, 4(1), 13-19. doi: 10.11648/j.rd.20230401.13

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    AMA Style

    Gemechu Mulatu Kerorsa. Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis. Res Dev. 2023;4(1):13-19. doi: 10.11648/j.rd.20230401.13

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  • @article{10.11648/j.rd.20230401.13,
      author = {Gemechu Mulatu Kerorsa},
      title = {Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis},
      journal = {Research & Development},
      volume = {4},
      number = {1},
      pages = {13-19},
      doi = {10.11648/j.rd.20230401.13},
      url = {https://doi.org/10.11648/j.rd.20230401.13},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.rd.20230401.13},
      abstract = {In the last decades, Ethiopia has been one of the fastest growing non-oil producing countries in the world. Along with the economic growth, inflation has been rising. Therefore, the main objective of this study was to identify the major macroeconomic factors affecting inflation in Ethiopia for the year 1981 - 2020. Secondary data were collected from World development indicators database. Both econometrics and descriptive statistics were used for data analysis. The findings of the descriptive result indicated that for forty years the mean official exchange rate was 10.13birr/dollar with standard deviation of 8.6Birr/dollar. The mean inflation rate for Ethiopia was 9.44% with a minimum of -9.81% and a maximum value of 44.39%. Growth of GDP was 5.91% with standard deviation of 6.45%. In order to show long run and short run relationship between variables, vector error correction regression model was applied. Before estimation, stationery test was conducted using dickey fuller test. Inflation rate and growth of GDP were stationary at level while exchange rate and unemployment rate were non-stationary. Therefore, vector error correction model was justifiable. The result of vector error correction model confirmed that there is a significant relationship between devaluation of exchange rate and inflation. Therefore, in order to control inflationary pressure appropriate polices must be designed which compromises unemployment, economic growth and exchange rate regimes.},
     year = {2023}
    }
    

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  • TY  - JOUR
    T1  - Macroeconomic Determinants of Inflation in Ethiopia: A Time Series Analysis
    AU  - Gemechu Mulatu Kerorsa
    Y1  - 2023/02/27
    PY  - 2023
    N1  - https://doi.org/10.11648/j.rd.20230401.13
    DO  - 10.11648/j.rd.20230401.13
    T2  - Research & Development
    JF  - Research & Development
    JO  - Research & Development
    SP  - 13
    EP  - 19
    PB  - Science Publishing Group
    SN  - 2994-7057
    UR  - https://doi.org/10.11648/j.rd.20230401.13
    AB  - In the last decades, Ethiopia has been one of the fastest growing non-oil producing countries in the world. Along with the economic growth, inflation has been rising. Therefore, the main objective of this study was to identify the major macroeconomic factors affecting inflation in Ethiopia for the year 1981 - 2020. Secondary data were collected from World development indicators database. Both econometrics and descriptive statistics were used for data analysis. The findings of the descriptive result indicated that for forty years the mean official exchange rate was 10.13birr/dollar with standard deviation of 8.6Birr/dollar. The mean inflation rate for Ethiopia was 9.44% with a minimum of -9.81% and a maximum value of 44.39%. Growth of GDP was 5.91% with standard deviation of 6.45%. In order to show long run and short run relationship between variables, vector error correction regression model was applied. Before estimation, stationery test was conducted using dickey fuller test. Inflation rate and growth of GDP were stationary at level while exchange rate and unemployment rate were non-stationary. Therefore, vector error correction model was justifiable. The result of vector error correction model confirmed that there is a significant relationship between devaluation of exchange rate and inflation. Therefore, in order to control inflationary pressure appropriate polices must be designed which compromises unemployment, economic growth and exchange rate regimes.
    VL  - 4
    IS  - 1
    ER  - 

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Author Information
  • Department of Economics, Wollega University, Nekemte, Ethiopia

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