The Effect of Devaluation on Major Macro Variables (The Ethiopian Case)
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Date
1996-06
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A.A.U
Abstract
A Time series econometrics technique especially error
correction Method employed for analyzing the efficiency of
devaluation on Ethiopian economy. Secondary data was
collected for the period 1964-1965 from different publication
and government office .
Edward's real exchange, current account and output model
adopted for the study; moreover, Elbadawi' s real exchange and
price model was applied for the study.
The result confirmed that devaluation could not lead to
stagflation circumstance. It was rather expansionary
(increasing output and employment) and inflationary. The
result of this study adheres the view of that when initial
condition of the economy at real exchange appreciation, nominal
devaluation could accelerate the process of convergence
towards its equilibrium. Devaluation improved the current
account balance because of the increment of aid to the country
after devaluation; however, it did not improve the trade
balance due to the fact that the premium declined considerable
degree but not abolished.
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Keywords
Ethiopian Case, Major Macro Variables