Inflation Dynamics and Food Prices in Ethiopia
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.
|Date of creation:||09 Dec 2010|
|Date of revision:||03 Jun 2013|
|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
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.:
- Josef Loening & Masato Higashi, 2011.
"Decomposing terms of trade fluctuations in Ethiopia,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 18(13), pages 1219-1224.
- 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.
- Josef L. Loening & Masato Higashi, 2010. "Decomposing Terms of Trade Fluctuations in Ethiopia," Ibero America Institute for Econ. Research (IAI) Discussion Papers 205, Ibero-America Institute for Economic Research.
- Loening, Josef L. & Durevall, Dick & Birru, Yohannes A., 2009.
"Inflation dynamics and food prices in an agricultural economy : the case of Ethiopia,"
Policy Research Working Paper Series
4969, The World Bank.
- Loening, Josef L. & Durevall, Dick & Ayalew Birru, Yohannes, 2009. "Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia," Working Papers in Economics 347, University of Gothenburg, Department of Economics.
- Ansgar Belke & Thorsten Polleit, 2006. "Money and Swedish Inflation Reconsidered," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 270/2006, Department of Economics, University of Hohenheim, Germany.
- Olusanya E. Olubusoye & Rasheed Oyaromade, 2008. "Modelling the Inflation Process in Nigeria," Research Papers RP_182, African Economic Research Consortium.
- Tidiane Kinda, 2011. "Modeling Inflation in Chad," IMF Working Papers 11/57, .
- 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.
- Mame Astou Diouf, 2007. "Modeling Inflation for Mali," IMF Working Papers 07/295, .
- Durevall, Dick, 1998. "The Dynamics of Chronic Inflation in Brazil, 1968-1985," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 423-432, October.
- David F. Hendry & Carlos Santos, 2004.
"Regression Models with Data-based Indicator Variables,"
2004-W04, Economics Group, Nuffield College, University of Oxford.
- David F. Hendry & Carlos Santos, 2005. "Regression Models with Data-based Indicator Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(5), pages 571-595, October.
- David F. Hendry & Carlos Santos, 2004. "Regression Models with Data-based Indicator Variables," Economics Papers 2004-W13, Economics Group, Nuffield College, University of Oxford.
- Jennifer Castle & Xiaochuan Qin & W. Robert Reed, 2011.
"Using Model Selection Algorthims to Obtain Reliable Coefficient Estimates,"
Working Papers in Economics
11/03, University of Canterbury, Department of Economics and Finance.
- Jennifer L. Castle & Xiaochuan Qin & W. Robert Reed, 2013. "Using Model Selection Algorithms To Obtain Reliable Coefficient Estimates," Journal of Economic Surveys, Wiley Blackwell, vol. 27(2), pages 269-296, 04.
- Minot, Nicholas, 2010. "Transmission of World Food Price Changes to African Markets and its Effect on Household Welfare," Food Security Collaborative Working Papers 58563, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Stefan Gerlach & Lars E.O. Svensson, 2000.
"Money and Inflation in the Euro Area: A Case for Monetary Indicators?,"
NBER Working Papers
8025, National Bureau of Economic Research, Inc.
- Gerlach, Stefan & Svensson, Lars E. O., 2003. "Money and inflation in the euro area: A case for monetary indicators?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1649-1672, November.
- Lars E.O. Svensson & Stefan Gerlach, 2001. "Money and inflation in the Euro Area: A case for monetary indicators?," BIS Working Papers 98, Bank for International Settlements.
- Gerlach, Stefan & Svensson, Lars E O, 2002. "Money and Inflation in the Euro-Area: A Case for Monetary Indicators?," CEPR Discussion Papers 3392, C.E.P.R. Discussion Papers.
- Hanson, James A., 1985. "Inflation and imported input prices in some inflationary Latin American economies," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 395-410, August.
- Getaw Tadesse & Atle G. Guttormsen, 2011. "The behavior of commodity prices in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 42(1), pages 87-97, 01.
- Quentin Wodon & Hassan Zaman, 2010. "Higher Food Prices in Sub-Saharan Africa: Poverty Impact and Policy Responses," World Bank Research Observer, World Bank Group, vol. 25(1), pages 157-176, February.
- Sterken, Elmer, 1999.
"Demand for money and shortages in Ethiopia,"
CDS Research Reports
199909, University of Groningen, Centre for Development Studies (CDS).
- Al-Mashat Rania & Billmeier Andreas, 2008.
"The Monetary Transmission Mechanism in Egypt,"
Review of Middle East Economics and Finance,
De Gruyter, vol. 4(3), pages 32-82, September.
- Alem, Yonas & Söderbom, Måns, 2012. "Household-Level Consumption in Urban Ethiopia: The Effects of a Large Food Price Shock," World Development, Elsevier, vol. 40(1), pages 146-162.
- Kevin Nell, 2004. "The structuralist theory of imported inflation: an application to South Africa," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1431-1444.
- Admassie, Assefa, 2013. "The Political Economy of Food Price: the Case of Ethiopia," WIDER Working Paper Series 001, World Institute for Development Economic Research (UNU-WIDER).
- Alexander Y Kyei & Nir Klein, 2009. "Understanding Inflation Inertia in Angola," IMF Working Papers 09/98, .
- Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
- Kenji Moriyama, 2008. "Investigating Inflation Dynamics in Sudan," IMF Working Papers 08/189, .
- Ulimwengu, John M. & Workneh, Sindu & Paulos, Zelekawork, 2009. "Impact of soaring food price in Ethiopia: Does location matter?," IFPRI discussion papers 846, International Food Policy Research Institute (IFPRI).
- Steven B. Kamin, 1996. "Real exchange rates and inflation in exchange-rate based stabilizations: an empirical examination," International Finance Discussion Papers 554, Board of Governors of the Federal Reserve System (U.S.).
- Castle, Jennifer L. & Hendry, David F., 2009.
"The long-run determinants of UK wages, 1860-2004,"
Journal of Macroeconomics,
Elsevier, vol. 31(1), pages 5-28, March.
- Rashid, Shahidur, 2010. "Staple Food Prices in Ethiopia," Food Security Collaborative Working Papers 58552, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Bigsten, Arne & Shimeles, Abebe, 2008. "Poverty Transition and Persistence in Ethiopia: 1994-2004," World Development, Elsevier, vol. 36(9), pages 1559-1584, September.
- Jurgen A. Doornik, 2008. "Encompassing and Automatic Model Selection," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 915-925, December.
- Baffes, John & Haniotis, Tassos, 2010. "Placing the 2006/08 commodity price boom into perspective," Policy Research Working Paper Series 5371, The World Bank.
- David Hendry & Hans-Martin Krolzig, 2003.
"The Properties of Automatic Gets Modelling,"
2003-W14, Economics Group, Nuffield College, University of Oxford.
- Jemma Dridi & Kimberly Zieschang, 2004. "Export and Import Price Indices," IMF Staff Papers, Palgrave Macmillan, vol. 51(1), pages 1-9.
- Stefan Dercon, 2009. "Rural Poverty: Old Challenges in New Contexts," World Bank Research Observer, World Bank Group, vol. 24(1), pages 1-28, April.
- By Gunnar Jonsson, 2001. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 1-2.
- Baltzer, Kenneth, 2013. "International to Domestic Price Transmission in Fourteen Developing Countries During the 2007-08 Food Crisis," WIDER Working Paper Series 031, World Institute for Development Economic Research (UNU-WIDER).
- Régis Barnichon & Shanaka J. Peiris, 2008.
"Sources of Inflation in Sub-Saharan Africa,"
Journal of African Economies,
Centre for the Study of African Economies (CSAE), vol. 17(5), pages 729-746, November.
- Emma C. Stephens & Edward Mabaya & Stephan von Cramon-Taubadel & Christopher B. Barrett, 2012. "Spatial Price Adjustment with and without Trade," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(3), pages 453-469, 06.
- David F. Hendry & Bent Nielsen, 2007. "Preface to Econometric Modeling: A Likelihood Approach," Introductory Chapters, in: Econometric Modeling: A Likelihood Approach Princeton University Press.
- Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy; Evidence from Sub-Saharan Africa," IMF Working Papers 06/115, .
- Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
- 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.
- Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
- Theresa Osborne, 2004. "Market News in Commodity Price Theory: Application to the Ethiopian Grain Market," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 133-164.
- Kimberly D. Zieschang & Jemma Dridi, 2002. "Compiling and Using Export and Import Price Indices," IMF Working Papers 02/230, .
- Durevall, Dick & Ndung'u, Njuguna S., 1998. "A Dynamic Model of Inflation for Kenya 1974 - 1996," Working Papers in Economics 7, University of Gothenburg, Department of Economics.
- Rodolphe Blavy, 2004. "Inflation and Monetary Pass-Through in Guinea," IMF Working Papers 04/223, .
- Juselius, Katarina, 1992. "Domestic and foreign effects on prices in an open economy: The case of Denmark," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 401-428, August.
When requesting a correction, please mention this item's handle: RePEc:hhs:gunwpe:0478. 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 references are entirely missing, you can add them using this form.