The Causes of Low Inflation in Ethiopia
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Date
2000-06
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A.A.U
Abstract
This paper tries to identify the determinants of Inflation in general the causes of low
. inflation in particular in Ethiopia with a time series data covering the period 1962 to
1997 The analytic technique used involves estimations of a model that incorporates
both monetarist and structuralist variables of inflation. The findings of the study
suggests that, expectation of inflation, real income, per capita food production and
money supply are found to be significant with their theoretically postulated sign.
out of the variables included in the model, expectation of inflation and real income
have substantial impact on the inflationGlY process of the country. Money supply is
the next important variable, though its coefficient does not add up to unity as it
argued by monetarist.
The study further allempted to look at the relation between inflation and degree of
monetization of the economy (which could roughly be measured by broad money
over GDP) . According to the investigation of the study, the degree of monetization
has no any role to play in the inflation spiral of the country since the economy is not
well monetized Rather it more likely appear that the extent of degree of monetization
of the economy has partly contributed to the prevalent of low inflation in the country.
if the government has a low inflation target it should adopt a policy that can avoid the
structural rigidities prevailing in the economy.
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Keywords
Causes, Inflation, Ethiopia