Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia

Contents:

Author Info

  • Loening, Josef L.

    (World bank)

  • Durevall, Dick

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Ayalew Birru, Yohannes

    (University of Sussex)

Abstract

Ethiopia has experienced a historically unprecedented increase in inflation, mainly driven by cereal price inflation, which is among the highest in Sub-Saharan Africa. Using monthly data over the past decade, we estimate error correction models to identify the relative importance of several factors contributing to overall inflation and its three major components, cereal prices, food prices and non-food prices. Our main finding is that, in the long run, domestic food and non-food prices are determined by the exchange rate and international food and goods prices. In the short to medium run, agricultural supply shocks and inflation inertia strongly affect domestic inflation, causing large deviations from long-run price trends. Money supply growth affects food price inflation in the short run, though excess money supply does not seem to drive inflation in the long run. Our results suggest a challenging time ahead for Ethiopia, with the need for a multipronged approach to fight inflation. Forecast scenarios suggest monetary and exchange rate policies need to take into account the cereal sector, as food staple growth is among the key determinants of inflation, assuming a decline in global commodity prices. Implementation of successful policies will be contingent on the availability of foreign exchange and the performance of agriculture.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econ.worldbank.org/external/default/main?pagePK=64165259&piPK=64165421&theSitePK=469372&menuPK=64166093&entityID=000158349_20090618133717
Download Restriction: no

Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 347.

as in new window
Length: 58 pages
Date of creation: 23 Feb 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0347

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC

Related research

Keywords: Agriculture; Cointegration analysis; Ethiopia; Exchange rate; Money demand; Food prices; Forecast; Inertia; Inflation;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Trostle, Ronald, 2008. "Factors Contributing to Recent Increases in Food Commodity Prices (PowerPoint)," Seminars, USDA Economists Group 43902, USDA Economists Group.
  2. Jeffrey A. Frankel, 2006. "The Effect of Monetary Policy on Real Commodity Prices," NBER Working Papers 12713, National Bureau of Economic Research, Inc.
  3. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  4. Serena Ng & Francisco J. Ruge-Murcia, 2000. "Explaining the Persistence of Commodity Prices," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 16(1/2), pages 149-171, October.
  5. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 2(2), pages 167-191.
  6. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan," IMF Working Papers 06/60, International Monetary Fund.
  7. Nicoletta Batini & Edward Nelson, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," Discussion Papers, Monetary Policy Committee Unit, Bank of England 06, Monetary Policy Committee Unit, Bank of England.
  8. Elliott, Graham & Timmermann, Allan G, 2007. "Economic Forecasting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6158, C.E.P.R. Discussion Papers.
  9. Neil R. Ericsson & Steven B. Kamin, 2008. "Constructive data mining: modeling Argentine broad money demand," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 943, Board of Governors of the Federal Reserve System (U.S.).
  10. Stephens, Emma C. & Mabaya, Edward T., 2008. "Spatial Price Adjustment with and without Trade," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6538, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  11. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(3), pages 23-40, Summer.
  12. Rania A. Al-Mashat & Andreas Billmeier, 2007. "The Monetary Transmission Mechanism in Egypt," IMF Working Papers 07/285, International Monetary Fund.
  13. Lennart Flood & Roger Wahlberg & Elina Pylkkänen, 2007. "From Welfare to Work: Evaluating a Tax and Benefit Reform Targeted at Single Mothers in Sweden," LABOUR, CEIS, CEIS, vol. 21(3), pages 443-471, 09.
  14. Angel J. Ubide, 1997. "Determinants of Inflation in Mozambique," IMF Working Papers 97/145, International Monetary Fund.
  15. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, Elsevier, vol. 98(2), pages 136-143, February.
  16. Ulimwengu, John M. & Workneh, Sindu & Paulos, Zelekawork, 2009. "Impact of soaring food price in Ethiopia: Does location matter?," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 846, International Food Policy Research Institute (IFPRI).
  17. Shanaka J. Peiris & Régis Barnichon, 2007. "Sources of Inflation in Sub-Saharan Africa," IMF Working Papers 07/32, International Monetary Fund.
  18. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
  19. Klugman, Jeni & Loening, Josef, 2007. "Welfare Impacts of Food Price Inflation in Ethiopia," MPRA Paper 24892, University Library of Munich, Germany.
  20. Castle, Jennifer L. & Hendry, David F., 2009. "The long-run determinants of UK wages, 1860-2004," Journal of Macroeconomics, Elsevier, Elsevier, vol. 31(1), pages 5-28, March.
  21. Sterken, Elmer, 1999. "Demand for money and shortages in Ethiopia," CDS Research Reports, University of Groningen, Centre for Development Studies (CDS) 199909, University of Groningen, Centre for Development Studies (CDS).
  22. Kindie Getnet & Wim Verbeke & Jacques Viaene, 2005. "Modeling spatial price transmission in the grain markets of Ethiopia with an application of ARDL approach to white teff," Agricultural Economics, International Association of Agricultural Economists, vol. 33(s3), pages 491-502, November.
  23. Bigsten, Arne & Shimeles, Abebe, 2008. "Poverty Transition and Persistence in Ethiopia: 1994-2004," World Development, Elsevier, Elsevier, vol. 36(9), pages 1559-1584, September.
  24. Noureddine Krichene, 2008. "Recent Inflationary Trends in World Commodities Markets," IMF Working Papers 08/130, International Monetary Fund.
  25. Clemens J. M. Kool & John A. Tatom, 1994. "The P-star model in five small economies," Review, Federal Reserve Bank of St. Louis, issue May, pages 11-29.
  26. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 3-10, Fall.
  27. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  28. Ansgar Belke & Thorsten Polleit, 2006. "Money and Swedish Inflation Reconsidered," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim, Department of Economics, University of Hohenheim, Germany 270/2006, Department of Economics, University of Hohenheim, Germany.
  29. By Gunnar Jonsson, 2001. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 2.
  30. Kenji Moriyama, 2008. "Investigating Inflation Dynamics in Sudan," IMF Working Papers 08/189, International Monetary Fund.
  31. Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(8), pages 1649-1672, November.
  32. Theresa Osborne, 2004. "Market News in Commodity Price Theory: Application to the Ethiopian GrainMarket," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(1), pages 133-164, 01.
  33. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  34. Bahmani-Oskooee, Mohsen & Tanku, Altin, 2006. "Black market exchange rate, currency substitution and the demand for money in LDCs," Economic Systems, Elsevier, Elsevier, vol. 30(3), pages 249-263, October.
  35. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(4), pages 635-59, December.
  36. Durevall, Dick & Ndung'u, Njuguna S., 1998. "A Dynamic Model of Inflation for Kenya 1974 - 1996," Working Papers in Economics, University of Gothenburg, Department of Economics 7, University of Gothenburg, Department of Economics.
  37. Magnus Saxegaard, 2006. "Excess Liquidity and the Effectiveness of Monetary Policy," IMF Working Papers 06/115, International Monetary Fund.
  38. Rodolphe Blavy, 2004. "Inflation and Monetary Pass-Through in Guinea," IMF Working Papers 04/223, International Monetary Fund.
  39. von Braun, Joachim, 2007. "The world food situation: New driving forces and required actions," Food policy reports, International Food Policy Research Institute (IFPRI) 18, International Food Policy Research Institute (IFPRI).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Alem, Yonas & Söderbom, Måns, 2012. "Household-Level Consumption in Urban Ethiopia: The Effects of a Large Food Price Shock," World Development, Elsevier, Elsevier, vol. 40(1), pages 146-162.
  2. Minot, Nicholas, 2011. "Transmission of world food price changes to markets in Sub-Saharan Africa:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1059, International Food Policy Research Institute (IFPRI).
  3. Durevall, Dick & Loening, Josef L. & Birru, Yohannes A., 2010. "Inflation Dynamics and Food Prices in Ethiopia," Working Papers in Economics, University of Gothenburg, Department of Economics 478, University of Gothenburg, Department of Economics, revised 03 Jun 2013.
  4. James Heintz & Léonce Ndikumana, 2010. "Working Paper 108 - Is there a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Paper Series, African Development Bank 245, African Development Bank.
  5. Mezgebo, Taddese, 2009. "A multivariate approach for identification of optimal locations with in Ethiopia’s wheat market to tackle soaring inflation on food price," MPRA Paper 18663, University Library of Munich, Germany.
  6. Tidiane Kinda, 2011. "Modeling Inflation in Chad," IMF Working Papers 11/57, International Monetary Fund.
  7. SENBETA, Sisay Regassa, 2012. "How important are external shocks in explaining growth in Sub-Saharan Africa? Evidence from a Bayesian VAR," Working Papers 2012010, University of Antwerp, Faculty of Applied Economics.
  8. Alem, Yonas & Köhlin, Gunnar & Stage, Jesper, 2014. "The Persistence of Subjective Poverty in Urban Ethiopia," World Development, Elsevier, Elsevier, vol. 56(C), pages 51-61.
  9. Minten, Bart & Stifel, David & Tamru, Seneshaw, 2012. "Structural transformation in Ethiopia: Evidence from cereal markets:," ESSP working papers, International Food Policy Research Institute (IFPRI) 39, International Food Policy Research Institute (IFPRI).
  10. James Heintz & Léonce Ndikumana, 2010. "Is There a Case for Formal Inflation Targeting in Sub-Saharan Africa?," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp218, Political Economy Research Institute, University of Massachusetts at Amherst.
  11. Maes, Kenneth & Kalofonos, Ippolytos, 2013. "Becoming and remaining community health workers: Perspectives from Ethiopia and Mozambique," Social Science & Medicine, Elsevier, Elsevier, vol. 87(C), pages 52-59.
  12. Yonas Alem and Mans Soderbom, 2010. "Household-Level Consumption in Urban Ethiopia: The Impact of Food Price Inflation and Idiosyncratic Shocks," Economics Series Working Papers CSAE WPS/2010-24, University of Oxford, Department of Economics.
  13. Loening, Josef L. & Higashi, Masato, 2011. "Decomposing Terms of Trade Fluctuations in Ethiopia," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48727, Verein für Socialpolitik / German Economic Association.
  14. Hadley, Craig & Stevenson, Edward Geoffrey Jedediah & Tadesse, Yemesrach & Belachew, Tefera, 2012. "Rapidly rising food prices and the experience of food insecurity in urban Ethiopia: Impacts on health and well-being," Social Science & Medicine, Elsevier, Elsevier, vol. 75(12), pages 2412-2419.
  15. Admassie, Assefa, 2013. "The political economy of food price: The case of Ethiopia," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  16. Baltzer, Kenneth, 2013. "International to domestic price transmission in fourteen developing countries during the 2007-08 food crisis," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  17. Christopher Adam & David Kwimbere & Wilfred Mbowe & Stephen O’Connell, 2012. "Working Paper 163 - Food Prices and Inflation in Tanzania," Working Paper Series, African Development Bank 441, African Development Bank.
  18. Tefera, Nigussie, 2012. "Welfare Impacts of Rising Food Prices in Rural Ethiopia: a Quadratic Almost Ideal Demand System Approach," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126698, International Association of Agricultural Economists.
  19. Durevall, Dick & Loening, Josef, 2009. "Ethiopia: Updated Inflation Forecasts," MPRA Paper 25899, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:gunwpe:0347. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.