Browsing by Author "Tagele, Molla"

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    Analysis of the Determinants of Ethiopian Trade Balance: an Ardl Approach
    (Addis Abeba university, 2016-06) Tagele, Molla; Gottu, Butte(PhD)
    Variables that determine the situation of a given economy could have short or long-run relationships. This study investigates the short and long-run relationships between the trade balance, real gross domestic product, real effective exchange rate, and inflation rate in the case of Ethiopian economy. The bounds testing approach to co-integration and error-correction models, developed within an autoregressive distributed lag(ARDL) framework is applied to quarterly data for the period 1993 to 2015in order to investigate whether a long-run equilibrium relationship existsbetween the trade balance and the variables indicated above. The result indicates that in the long-run one per cent increase in real effective exchange rate increases trade balance by about 0.19 percent. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. Under Johansen co-integration approach the error correction model (ECM) shows both the short- run and long -run relationship among the indicated macroeconomic variables (real effective exchange rate, real gross domestic product and inflation).The coefficient of the error correction term indicates that 75.7% of shock (short-run disequilibria) will be adjusted within the same year, but under bound test of co-integration nearly 80 % of the previous quarter’s shock adjusts back to long-run equilibrium in the current quarter