Abstract:
Exchange Rate Pass-Through to Import and Consumer Prices: Evidence from Ethiopia
Helen Berga
Addis Ababa University, 201 2
The fact that Ethiopia adopted managed Doating exchange rale policy since 1992 as well
as various trade reform measures taken makes the country's import and consumer prices
susceptible to the effects of exchange rate movements. Thus, the study invest igates the
degree of ERPT and its asymmetry to import and consumer prices in Ethi opia between
1991 /92 and 20 10111 using two types of VAR models (SVAR and CVAR). Based on
SVAR analysis the paper found that ERPT in Ethiopia during the period under review is
moderate, significant and persistent in the case of import price and low and short lived in
the case of consumer prices. The eointegralion analysis shows incomplete ERr']' to
import price and absence of pass-through to consumer price in the long run. The result
obtained from the asymmetric Illodel suggests that ERPT to import prices is higher in
periods of Birr depreciation than appreciation. Also, pass-through to import prices is
found to be higher in periods of small changes than large changes in the exchange rate.
The study also tries to get pass-through estimates in different inDation environments in
order to test Taylor'S hypothesis. However, no evidence is found which supports the
hypothesis in the ease of Ethiopia. The fact that ERPT was found to be incomplete has
useful implication to polieymakers, especially in the design and implementati on of
exchange rate and monetary policy.
