Exchange Rate Pass through in Ethiopia: A Vector Error Correction Model (VEC)
No Thumbnail Available
Date
2014-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
It is recognized in the literature that exchange rate pass through is a very important
instrument in the design of monetary policy, particularly in response to exchange rate
shocks. This paper has examined the pattern of exchange rate pass-through to consumer
price indices in Ethiopia in the sample period beginning from 1998Q1 up to 2013Q4 with 64
observations. Nominal effective exchange rate (NEER) and consumer price index (CPI) was
the centre of investigation in the paper. Error correction model accompanied by impulse
response function is applied for analyzing the data. The result shows that there is modest
exchange rate pass through of 34 % in the long run. However, there is low exchange pass
through in the short run in that it is not much difficult burden for the monetary authority.
Description
Keywords
Exchange Rate Pass Through