Inflation dynamics and food prices in an agricultural economy : the case of Ethiopia
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 from the past decade, the authors 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. The main finding is that, in a longer perspective, over three to four years, the main factors that determine domestic food and non-food prices are the exchange rate and international food and goods prices. In the short run, agricultural supply shocks and inflation inertia strongly affect domestic inflation, causing large deviations from long-run price trends. Money supply growth does affect food price inflation in the short run, although the money stock itself does not seem to drive inflation. The results suggest the need for a multi-pronged approach to fight inflation. Forecast scenarios suggest monetary and exchange rate policies need to take into account cereal production, which 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.
|Date of creation:||01 Jun 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
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.:
- 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.
- 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.
- NG, Serena & RUGE-MURCIA, Francisco J., 1997.
"Explaining the Persistence of Commodity Prices,"
Cahiers de recherche
9709, Universite de Montreal, Departement de sciences economiques.
- 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.
- 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.
- Sterken, Elmer, 1999.
"Demand for money and shortages in Ethiopia,"
CDS Research Reports
199909, University of Groningen, Centre for Development Studies (CDS).
- Bigsten, Arne & Shimeles, Abebe, 2008. "Poverty Transition and Persistence in Ethiopia: 1994-2004," World Development, Elsevier, vol. 36(9), pages 1559-1584, September.
- von Braun, Joachim, 2007. "The world food situation: New driving forces and required actions," Food policy reports 18, International Food Policy Research Institute (IFPRI).
- Rania A. Al-Mashat & Andreas Billmeier, 2007.
"The Monetary Transmission Mechanism in Egypt,"
IMF Working Papers
07/285, International Monetary Fund.
- Nicoletta Batini & Edward Nelson, 2001.
"The Lag from Monetary Policy Actions to Inflation: Friedman Revisited,"
06, Monetary Policy Committee Unit, Bank of England.
- Batini, Nicoletta & Nelson, Edward, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," International Finance, Wiley Blackwell, vol. 4(3), pages 381-400, Winter.
- Neil R. Ericsson & Steven B. Kamin, 2008. "Constructive data mining: modeling Argentine broad money demand," International Finance Discussion Papers 943, Board of Governors of the Federal Reserve System (U.S.).
- Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
- Graham Elliott & Allan Timmermann, 2008.
Journal of Economic Literature,
American Economic Association, vol. 46(1), pages 3-56, March.
- Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
- Klugman, Jeni & Loening, Josef, 2007. "Welfare Impacts of Food Price Inflation in Ethiopia," MPRA Paper 24892, University Library of Munich, Germany.
- 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.
- Kenji Moriyama, 2008. "Investigating Inflation Dynamics in Sudan," IMF Working Papers 08/189, International Monetary Fund.
- Kevin D. Hoover & Stephen J. Perez, .
"Data Mining Reconsidered: Encompassing And The General-To-Specific Approach To Specification Search,"
Department of Economics
97-27, California Davis - Department of Economics.
- 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, vol. 2(2), pages 167-191.
- Kevin Hoover & Stephen J. Perez, 2003. "Data Mining Reconsidered: Encompassing And The General-To-Specific Approach To Specification Search," Working Papers 9727, University of California, Davis, Department of Economics.
- 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.
- Angel J. Ubide, 1997. "Determinants of Inflation in Mozambique," IMF Working Papers 97/145, International Monetary Fund.
- Magnus Saxegaard, 2006. "Excess Liquidity and Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa," IMF Working Papers 06/115, International Monetary Fund.
- Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
- Rodolphe Blavy, 2004. "Inflation and Monetary Pass-Through in Guinea," IMF Working Papers 04/223, International Monetary Fund.
- Trostle, Ronald, 2008. "Factors Contributing to Recent Increases in Food Commodity Prices (PowerPoint)," Seminars 43902, USDA Economists Group.
- Jeffrey A. Frankel, 2006.
"The Effect of Monetary Policy on Real Commodity Prices,"
NBER Working Papers
12713, National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333 National Bureau of Economic Research, Inc.
- Angus Deaton, 1999.
"Commodity Prices and Growth in Africa,"
Journal of Economic Perspectives,
American Economic Association, vol. 13(3), pages 23-40, Summer.
- Noureddine Krichene, 2008. "Recent Inflationary Trends in World Commodities Markets," IMF Working Papers 08/130, International Monetary Fund.
- 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, vol. 21(3), pages 443-471, 09.
- Bahmani-Oskooee, Mohsen & Tanku, Altin, 2006. "Black market exchange rate, currency substitution and the demand for money in LDCs," Economic Systems, Elsevier, vol. 30(3), pages 249-263, October.
- 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.
- 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).
- Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan: Money or Wheat?," IMF Working Papers 06/60, International Monetary Fund.
- Stephens, Emma C. & Mabaya, Edward T., 2008. "Spatial Price Adjustment with and without Trade," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6538, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Jeffrey M Wooldridge, 2002.
"Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity,"
CeMMAP working papers
CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- 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., vol. 20(1), pages 39-54.
- 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., vol. 14(4), pages 403-22, July-Aug..
- 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.
- By Gunnar Jonsson, 2001. "Inflation, Money Demand, and Purchasing Power Parity in South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 2.
- Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
- 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.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4969. 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: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.