International Economics

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Browsing International Economics by Author "Admassie, Assefa (PhD)"

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    Exchange Rate Pass-Through to Import and Consumer Prices: Evidence from Ethiopia
    (Addis Ababa University, 2012-06) Berga, Helen; Admassie, Assefa (PhD)
    Exchange Rate Pass-Through to Import and Consumer Prices: Evidence from Ethiopia Helen Berga Addis Ababa University, 2012 The fact that Ethiopia adopted managed floating exchange rate 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 investigates the degree of ERPT and its asymmetry to import and consumer prices in Ethiopia between 1991/92 and 2010/11 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 cointegration analysis shows incomplete ERPT to import price and absence of pass-through to consumer price in the long run. The result obtained from the asymmetric model 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 inflation environments in order to test Taylor’s hypothesis. However, no evidence is found which supports the hypothesis in the case of Ethiopia. The fact that ERPT was found to be incomplete has useful implication to policymakers, especially in the design and implementation of exchange rate and monetary policy.