The Effect of Financial Inclusion on Inflation: The Case of Ethiopia
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Date
2024-07-02
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A.A.U
Abstract
Currently,financial inclusion is receiving significant attention in policy circles due to its role in
fostering national development and managing inflation through effectivemonetary policy
transmission in the economy. This study focuses on analyzing how financial inclusion impact
inflation levels in Ethiopia. Both long and short-run error correction time series model were
estimated in the datasets spanning from 2010Q3 to 2023Q2. The results indicated that an
increased in financial inclusion throughits measurements i.e. number of financial access points,
per 100,000 persons and utilization of savings account per 1000 adults, led to a reduction in
inflation by encouraging individuals to use formal financial systems by promoting efficient
monetary transmission channel in the entire economy. Additionally, variables exchange rate and
money supply demonstrated a positive impact on inflation levels. To effectively manage inflation,
predict price movements in the economy, and make informed decisions, financial policymakers
should prioritize expanding financial inclusion by increasing access points and offering suitable
and affordable financial products and services specifically targeting the excluded and
underserved segments of society. Monitoring broad money and exchange rates are also crucial,
as they have significant effects on prices.