Browsing by Author "Michael, Yemane"

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    The Relationship between Inflation and Economic Growth in Ethiopia
    (Addis Ababa University, 2008-06) Michael, Yemane; Alemu, Tekie (PhD)
    It is widely believed that moderate and stable inflation rates promote the development process of a country, and hence economic growth. Moderate inflation supplements the return to savers, enhances investment, and therefore, accelerates economic growth of the country. This paper empirically explores the present relationship between inflation and economic growth in the context of Ethiopia. Using annual date set on real GDP and CPI as well as other variables, for the period 1971 to 2006, an assessment of the empirical evidence has been acquired through the co-integration and error correlation models. Furthermore, it explores an interesting policy issue of what is the threshold level of inflation for the economy. The empirical evidence demonstrates that there exists a statistically significant long-run negative relationship between inflation and economic growth for Ethiopia as indicated by a statistically significant long-run negative relationship between CPI and real GDP. In addition, the estimated threshold model suggests 16 percent as the threshold level (i.e., structural breakpoint) of inflation above which inflation adversely affects economic growth. These results have important policy implications for both domestic policy makers and the development partners working in the country.