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Determinants of Recent Inflation in Ethiopia


  • Menji, Sisay


Abstract Inflation has been a rising in Ethiopia during recent years, mainly fueled by food inflation. In the study, an analysis of the determinants of inflation was made using quarterly data during 1997/98 – 2007/08. The research employed Co-integration regression after finding that the variables included in the model were cointegrated. The results from the study depicts that inflation was significantly affected by money supply growth (positively) and domestic output (negatively). Though expected to have a significant effect; fluctuations in the official exchange rate, gas oil price, and budget deficit were found to have an insignificant impact on the inflation rate. Surprisingly though expected to have an insignificant impact, lending rate was found to have a significant impact on the inflation rate. The study concludes with recommendations to avert inflation.

Suggested Citation

  • Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29668

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    References listed on IDEAS

    1. Hammermann, Felix & Flanagan, Mark, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," Kiel Working Papers 1373, Kiel Institute for the World Economy (IfW).
    2. Mark J Flanagan & Felix Hammermann, 2007. "What Explains Persistent Inflation Differentials Across Transition Economies?," IMF Working Papers 07/189, International Monetary Fund.
    3. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April.
    4. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    5. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE.
    6. Eva Gutierrez, 2003. "Inflation Performance and Constitutional Central Bank Independence; Evidence From Latin America and the Caribbean," IMF Working Papers 03/53, International Monetary Fund.
    7. Mark Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
    8. repec:imf:imfeci:2 is not listed on IDEAS
    9. Keith M. Carlson, 1980. "The lag from money to prices," Review, Federal Reserve Bank of St. Louis, issue Oct, pages 3-10.
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    More about this item


    Inflation; Money Supply; Government Expenditure; GDP; Real Interest Rates;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment


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