Exchange Rate Pass-Through in Ethiopia: A Vector Error Correction Model
| dc.contributor.advisor | Girma Estifanos (PhD) | |
| dc.contributor.author | Nuguse Girma | |
| dc.date.accessioned | 2023-12-27T08:23:47Z | |
| dc.date.available | 2023-12-27T08:23:47Z | |
| dc.date.issued | 2023-06-04 | |
| dc.description.abstract | Ethiopia is small open economy adapted managed floating exchange rate since 1992 and applied exchange rate devaluation as expenditure switching policy frequently. The domestic prices become further debatable following such change in exchange rate. The main focus of this research work was to investigate the theoretical and empirical impact of Exchange rate change in to domestic prices both on import and consumer price side. To this end, the study adapted Vector error correction model on quarterly data ranging from 2005 to 2022. Furthermore, this study utilized the impulse response function and variance decomposition analysis to discuss weather additional links between domestic price and exchange rate exists. Based on a Vector error correction model analysis the study found that import price and money supply have a significant positive impact on consumer price while the effect of exchange rate change and world commodity price index is positive but insignificant. The impulse response function further shows that ERPT in to domestic price is low, incomplete and higher for import price compared to consumer price (9.1 and 3.08 percent after two years respectively). On other hand the variance decomposition indicates that the higher variation in consumer price and import price arises from their own shock while world commodity price index is the second candidate to contribute higher variation to domestic price in the model. That can be considered as an evidence for the presence of imported inflation in Ethiopia. The factuality of low and incomplete exchange rate Pass through in Ethiopia gives a greater flexibility for policymakers to design independent optimal mix of economic policy. | |
| dc.identifier.uri | http://etd.aau.edu.et/handle/123456789/1202 | |
| dc.language.iso | en | |
| dc.publisher | A.A.U | |
| dc.subject | Nominal Effective Exchange Rate, Consumer Price, Import Price | |
| dc.title | Exchange Rate Pass-Through in Ethiopia: A Vector Error Correction Model | |
| dc.type | Thesis |