Applied Economic Modeling And Forecasting (Fiscal Policy Analysis And Planning)
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Browsing Applied Economic Modeling And Forecasting (Fiscal Policy Analysis And Planning) by Subject "Exchange rate"
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Item The Economy Wide Impact of the Devaluation of Ethiopian Currency: A Recursive Dynamic Computable General Equilibrium Approach(Addis Ababa University, 2018-06) Aklilu, Abebe; Zerayehu, Sime (PhD)In recent times, Ethiopia has experienced far-reaching economic growth and development changes. Despite this growth, the country has been chronically running a trade deficit. Devaluation is one of the most important but controversial trade policies recommended by the IMF for most of the developing countries in restoring the trade balance and increasing real GDP growth. To this end, this study analyzes the economy-wide impact of the devaluation of Ethiopian currency (birr) using Dynamic Computable General Equilibrium (DCGE) Model. The model used an updated version of 2009/10 Ethiopian SAM developed by Ethiopian Development Research Institute (EDRI). Three different simulation scenarios have been simultaneously used to evaluate the real impact of devaluation on the economy; 15%, 25% and 35% increase in exchange rate respectively. The findings of the study reveal that devaluation results in a decline in the overall GDP growth and domestic absorption. On the other hand, the trade balance has been improved under all simulation scenarios. Moreover, the productions of agriculture and service sectors expand whereas that of the industrial sector shrinks at a higher rate. By and large, real consumption, fixed investment, GDP, government revenue and household welfare are all adversely affected justifying that devaluation has contractionary effects on the Ethiopian economy. Based on the findings, the researcher suggests the monetary authority to stick to its managed floating policy stance and make changes in cautious and predictable manner. Moreover, there is an obvious need to combine monetary policy measures with fiscal policy in order to promote sustained economic development.Item Economy-Wide Impacts of Export Price Changes in Ethiopia: A Recursive Dynamic Commutable General Equilibrium Analysis(Addis Ababa University, 2018-10) Endalkachew, Kabtamu; Sisay, Regassa (PhD)Ethiopia’s export is largely dominated by primary commodities characterized by a high degree of price variability. Therefore, this study investigated the economy-wide impacts of export price changes using Recursive Dynamic Computable General Equilibrium model calibrated through 2009/10 Social Accounting Matrix of Ethiopia, developed by International Food and Poverty Research Institute in collaboration with Ethiopia Development Research Institute and University of Sussex. The study reveals increase in export price appreciates domestic currency, rises import demand, but reduces export demand together that worsens Ethiopia trade balance. The increase in export price also weakens investment demand, government income and saving, the overall and sectoral economic growth. It also rises factors return and household income and welfare. Conversely, decrease in export price depreciates domestic currency, which lead to low import, but, high export demand, which in turn leads to improved trade balance. It also increases investment demand, government income and saving, and the overall economic growth. However, decrease in export price results low factors return, household income and welfare. To reduce the negative impacts of export price changes in the overall economy, it is recommended that: a) the exchange rate policy of the country should managed-floating type, b) diversification and industrialization of export sector through integrating commodity policies into the country overall development strategy, and c) harness the income gains from commodity prices to facilitate wider-economic transformations and reduction of dependence on primary commodities export.