Browsing by Author "Tesfay, Teweldebrehan"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Ethiopia: Vector Auto-regression Approach
    (Addis Ababa University, 2010-06) Tesfay, Teweldebrehan; Hamda, Hussien
    The study empirically investigates the relative effectiveness of fiscal and monetary policies on economic growth in Ethiopia. With the objective of finding out the relative strength of monetary and fiscal policies on economic growth, the study used an unrestricted vector autoregressions (VARs) framework, based on the St. Louis equation, to compute variance decompositions (VDCs) and impulse response functions (IRFs). Neither government expenditure nor money supply (M2) was found to be statistically significant in the co-integrating equations estimated suggesting that the policy variables are neutral in the long run. The results derived from the VDCs and IRFs imply that monetary policy alone has a significantly positive impact on GDP growth in Ethiopia. However, the impact of fiscal policy on GDP growth remains broadly insignificant. The outcome of this study, thus, supports the views of the proponents of the St. Louis Model that monetary policy is relatively more effective than fiscal policy in stimulating economic activity.