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Inflation Dynamics and Food Prices in Ethiopia

Author Info

  • Durevall, Dick

    ()

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

  • Loening, Josef L.

    (World Bank)

  • Birru, Yohannes A.

    (National Bank of Ethiopia)

Abstract

During the global food crisis, Ethiopia experienced an unprecedented increase in inflation, among the highest in Africa. Using monthly data over the past decade, we estimate models of inflation to identify the importance of the factors contributing to CPI inflation and three of its major components: cereal prices, food prices, and non-food prices. Our main finding is that movements in international food and goods prices, measured in domestic currency, determined the long-run evolution of domestic prices. In the short run, agricultural supply shocks affected food inflation, causing large deviations from long-run price trends. Monetary policy seems to have accommodated price shocks, but money supply growth affected short-run non-food price inflation. Our results suggest that when analyzing inflation in developing economies with a large food share in consumer prices, world food prices and domestic agricultural production should be considered. Omitting these factors can lead to biased results and misguided policy decisions.

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File URL: http://hdl.handle.net/2077/24038
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 478.

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Length: 46 pages
Date of creation: 09 Dec 2010
Date of revision: 03 Jun 2013
Handle: RePEc:hhs:gunwpe:0478
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/

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Keywords: Ethiopia; Commodity Prices; Food Policy; Food Prices; Global Food Price Crises; Monetary Policy;

Other versions of this item:

Find related papers by JEL classification:
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
  • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
  • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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Cited by:

  1. Ulrik Beck, 2015. "Keep it real: Measuring real inequality using survey data from developing countries," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Guglielmo Maria Caporale & Alanoud Al-Maadid & Fabio Spagnolo & Nicola Spagnolo, 2015. "Spillovers between food and energy prices and structural breaks," Institute Working Papers 02/2016, Institute for Culture and Society, University of Navarra.
  3. Yonas Alem & Jonathan Colmer, 2015. "Consumption smoothing and the welfare cost of uncertainty," GRI Working Papers 118b, Grantham Research Institute on Climate Change and the Environment.
  4. Aron, Janine & Muellbauer, John & Sebudde, Rachel, 2015. "Inflation forecasting models for Uganda: is mobile money relevant?," CEPR Discussion Papers 10739, C.E.P.R. Discussion Papers.
  5. Dick Durevall & Bo Sjö, 2012. "Working Paper 151 - The Dynamics of Inflation in Ethiopia and Kenya," Working Paper Series 400, African Development Bank.
  6. Yonas Alem & Jonathan Colmer, 2015. "Consumption Smoothing and the Welfare Cost of Uncertainty," CEP Discussion Papers dp1369, Centre for Economic Performance, LSE.
  7. Hernandez, Manuel A. & Rashid, Shahidur & Lemma, Solomon & Kuma, Tadesse, 2015. "Institutions and market integration: The case of coffee in the Ethiopian commodity exchange:," IFPRI discussion papers 1464, International Food Policy Research Institute (IFPRI).
  8. Berhane, Guush & Abay, Mehari Hiluf & Woldehanna, Tassew, 2015. "Childhood shocks, safety nets and cognitive skills: Panel data evidence from rural Ethiopia:," ESSP working papers 73, International Food Policy Research Institute (IFPRI).
  9. Misati, Roseline Nyakerario & Munene, Olive, 3. "Second Round Effects And Pass-Through Of Food Prices To Inflation In Kenya," International Journal of Food and Agricultural Economics (IJFAEC), NiÄŸde University, Faculty of Economics and Administrative Sciences, vol. 3(3).
  10. Anh D. M. Nguyen & Jemma Dridi & Filiz D Unsal & Oral Williams, 2015. "On the Drivers of Inflation in Sub-Saharan Africa," IMF Working Papers 15/189, International Monetary Fund.
  11. repec:cep:stieop:59 is not listed on IDEAS
  12. Hyun-Hoon Lee & Suejin A. Lee & Jae-Young Lim & Cyn-Young Park, 2016. "Effects of food price inflation on infant and child mortality in developing countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(5), pages 535-551, June.
  13. Yonas Alem & Jonathan Colmer, 2015. "Consumption smoothing and the welfare cost of uncertainty," LSE Research Online Documents on Economics 63816, London School of Economics and Political Science, LSE Library.

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