G/ Yohannes Emmanuel (PhD)Angesa Olana2018-06-272023-11-092018-06-272023-11-092014-07http://10.90.10.223:4000/handle/123456789/4112Ethiopia is one of countries in Sub Saharan African with moderate economic growth in recent years. The aim of this study was to examine the relationship between inflation rate and economic growth in Ethiopia. The methodology employed in this study is the vector error correction model (VECM). The series considered are consumer price index (as a proxy for inflation rate), real GDP (constant 2005 USD) (as a measure of economic growth) and openness. Annual data on inflation rate, openness and real GDP for the period from 1992 to 2012 are obtained from the World Economic Outlook (WEO) database of the International Monetary Fund (IMF). A stationarity test was carried out using the Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP) tests. The null hypothesis of a unit root was not rejected for all series under consideration implying that the series are all non-stationary in levels. The first differences of all series, however, were found to be stationary. For the period spanning from 1992 to 2012, there was one co-integrating relationship between openness, inflation rate and economic growth. The estimated long run model shows that there exists strong inverse long-run relationship between inflation rate and economic growth. The estimated coefficient of the error correction term (0.0143) shows that about 1.43% of the short run disequilibrium in real GDP will be adjusted within a year. In the short run, one time lagged inflation rate has a significant negative impact on the current real GDP whereas two time lagged openness has a significant positive impact. The impulse response functions reveal that inflation rate and openness innovations have a positive impact on real GDP. The results of Granger causality test show that a unidirectional causality was running from economic growth to inflationenRelationship in EthiopiaThesis