The Effect of Some Economic Factors on Ination in Ethiopia
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Date
2020-07-03
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Addis Ababa University
Abstract
This research looks at the e_ect of some economic factors on ination in Ethiopia.The
study was conducted with the target of searching for the relationships that exist between
selected economic variables and ination. Thus, this study employed analysis together
with Econometric analysis like Johnson co-integration, Vector Error correction model
(VECM), Granger causality tests, impulse response and forecast error variance decompo-
sition to analysis future and short-run relationship between variables. We have estimated
economic variables by using annual statistic data for the amount starting from 1975 to
2019. The empirical results show that real rate of exchange and cash in hand were the
variables that are found to own a protracted run signi_cant and positive relationship with
the ination and government expenditure and also the long term signi_cant and negative
relationship with the ination. In short run the lagged coe_cient of real charge per unit,
cash in hand and government expenditure incorporates a positive e_ect on ination. The
error correction term the adjustment coe_cient found during this study indicates that
a couple of 12% of the variation within the ination from its equilibrium level is cor-
rected within a year. The pairwise Granger causality test result suggest that the existence
of strong and signi_cant correlation between a uni- directional causation runs from real
GDP to ination, funds to ination, government expenditure to ination and ination
to real exchange rate per unit. .
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Keywords
Economic Factors, Ination in Ethiopia