Economics

One of the main objectives of macroeconomic policy of the Ethiopian economy is to attain sustainable economic growth together with stable price level. However, in recent times the country has been experiencing an increase in price level and the situation has got wide range of concern regarding its effect on economic growth. Hence, the central focus of this research is to look into the nature of inflation-economic growth relationship of Ethiopia from 1974 to 2012, specifically by using the framework of Vector Auto Regressive (VAR), Error Correction Mechanism(ECM), causality test and threshold level analysis using annual data covering the period from 1974 to 2012. All the variables are tested for unit roots using Augmented Dickey Filler (ADF) test and the test results revealed the variables are stationary at their first difference. The results of co integration test, using Johansen Maximum likelihood approach, indicate the existence of long run relationship among the variables entered in the models. The Granger Causality Test found the bidirectional causal relationship between inflation and economic growth. And the result also reveals the negative relationship between inflation and economic growth in Ethiopia both in the short and long run. The threshold model estimation recommends 9-10 percent threshold inflation level, which is optimal for economic growth. Above this level inflation affects economic growth negatively. Therefore, controlling moderate inflation should be the main goal for policymakers in Ethiopia. Finally, though the research achieved the objectives mentioned, lack of quarterly data on many important macroeconomic variables act as a limitation of the study.

Though, various economic and political reforms which are expected to stimulate the role of private sector in the economy have been made over the last couple of decades, the performance of private sector has remained relatively low so far. Hence, this study was conducted with the main objective of investigating and analyzing factors that determine domestic private investment in Ethiopia by using the framework of VAR and vector error correction mechanism using annual data covering the period from 1971 to 2014. The regression results show that public investment, real GDP, exchange rate and credit have significant positive long run effect on private investment, while interest rate has significant negative long run effect. In the short run, exchange rate has significant positive contribution to private investment, while inflation has significant short run negative effect on private investment after one lags. Hence, to promote the performance of private sector in the country, it is essential to take measures that can improve real income of people, and make public investment in basic infrastructures and institutions that are crucial to attract private investment. Besides, ensuring stable investment environment and macroeconomic and political stability are necessary to build lasting confidence of private investors. Introduction: Private investment is a crucial prerequisite for economic growth because it allows entrepreneurs to set economic activity in motion by bringing resources together to produce goods and services. Rapid and sustained growth is facilitated by a virtuous circle whereby entrepreneurship and investment lead to higher productivity, making it possible to invest larger sums in the future. In the course of this process, jobs are created and new technologies are introduced, especially through international trade and investment linkages. Competitive and well-functioning markets are crucial because they promote and reward innovation and diversification, foster firm entry and exit and help to ensure a level playing field for all private sector actors. They also have an important role in making the growth process more socially and geographically inclusive, which expands the opportunities for poor people to participate in and benefit from growth. Successful mobilization of private investment is thus increasingly important for creating employment, raising growth rates and reducing poverty. Investment plays a very important role in the economic growth of a country; it raises the productive capacity of an economy, increases the level of employment and promotes technical progress through embodiment of new techniques. It also plays a crucial role in determining long run productive capacity of an economy, because investment creates new capital goods, so as higher rate of investment means that capital stock is growing rapidly. Private investment therefore plays powerful mean for innovation economic growth and poverty reduction. Economic growth could be realized through a proper development policy, one of which could be promoting demand-driven investment. The experiences of most developed countries have shown that rapid growths of the economies have come through increased investment. Thus, investment plays a vital role for economic growth and development and for improving the welfare of the society. It also plays a multiplier effect through creating employment opportunity, reducing poverty, transferring technology through Foreign Direct Investment (FDI), and increasing capital accumulation. Therefore, Ethiopia is now strongly seeking investment in all sectors in general and in agriculture sector in particular from foreign as well as domestic sources. The Foreign Direct Investment (FDI) is expected to bring entrepreneurial skills and new technologies in addition to capital. Thus, private

The objective of this study is to show the effect of inflation on savings in a Small open economy Ethiopia for the period 1974-2014 using autoregressive distributed lag (ARDL) and ECM. The result of Cointegration test, using ARDL bounds testing approach, indicates the existence of long run relationship among the variables entered in the regression model and between inflation and national saving .To explores the direction of causality between inflation and National saving Granger Causality test has been employed. The direction of causation test indicated the existence of unidirectional causality running from inflation to saving, but saving does not granger causes inflation. Further, the long run estimation result shows that there is significant positive effect of inflation on national saving in the long run and insignificant negative effect in the short run.

The objective of this research is to show the causality effect between money supply growth and Price level in Ethiopia using a co-integrated Vector Auto Regressive (VAR) model over the period 1975 to 2012. The result of cointegration test, using Johansen Maximum likelihood approach, indicates the existence of long run relationship among the variables entered in both inflation and growth models .To explore the short-run direction of causality between Money Supply and Consumer Price Index (CPI), Granger Causality test has been applied and in order to investigate the existence of long-run relationship, co-integration analysis has been employed. The direction of causation between money and prices, the analyses suggests that the causation runs from money supply to prices, but price level does not causes money supply. Further, the co-integration analysis established that money supply and CPI were found to be co-integrated suggesting an existence of long-run relationship.

This paper examines the determinants of demand for money and its stability in Ethiopia using quarterly time series data spanning from 1994Q1 to 2016Q4. The paper adopts the Pesaran et al. (2001) ARDL bounds testing approach to investigation both the long and short-run determinants of broad money demand in Ethiopia, and also uses CUSUM and CUSUMSQ tests to check the stability of money demand function. Furthermore, variance decomposition and impulse response functions, was employed for analyzing the factors which influence the movements of money demand. The study is supposed to be significant because the demand for real money balances serves as the center between the monetary policy and the real sector of a given economy. Based on the quarterly data under the period of study, cointegration results reveal that there is a long-run relationship between real money balances and the explanatory variables namely, real GDP, inflation, exchange rate and both domestic and foreign interest rates. Both the long run and short run result show Consistent with money demand theory. That is the demand for real money balances is positively related with scale variable (real GDP) but it responds inversely to opportunity cost of holding money (inflation, treasury bill rate and federal fund rate). Moreover, the stability test of cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) test result indicates that real money demand function is stable over the study period, signifying that it is possible to use the monetary aggregate as target of monetary policy in Ethiopia to achieve monetary policy objectives.

This study sought to examine the relative importance of the different monetary policy transmission channels and its effect on key macroeconomic variables using quarterly time series data covering from 1994/95Q1 to 2017/18Q4 in Ethiopia. Structural Vector Autoregressive model (SVAR) was used to address the issues.All the variables are tested for unit roots using ADF and PP test and model stability and other necessary tests was conducted. The estimation result indicates that the monetary aggregate, exchange rate and credit to the private sector are effective channels of monetary policy transmission in affecting output and inflation in Ethiopia, while the interest rate channel is weak. From a policy perspective, the results indicate that National Bank of Ethiopia is required to continuously monitor the developments of the monetary aggregate, the credit and foreign exchange markets in order to design effective monetary policies. In addition, it would help to the NBE to implement an effective monetary policy for achieving price and exchange rate stability and support sustainable economic growth through the appropriate monetary channels.

The objective of this study is to show the effect of inflation on savings in a Small open economy Ethiopia for the period 1974-2014 using autoregressive distributed lag (ARDL) and ECM. The result of Cointegration test, using ARDL bounds testing approach, indicates the existence of long run relationship among the variables entered in the regression model and between inflation and national saving .To explores the direction of causality between inflation and National saving Granger Causality test has been employed. The direction of causation test indicated the existence of unidirectional causality running from inflation to saving, but saving does not granger causes inflation. Further, the long run estimation result shows that there is significant positive effect of inflation on national saving in the long run and insignificant negative effect in the short run.

Though, various economic and political reforms which are expected to stimulate the role of private sector in the economy have been made over the last couple of decades, the performance of private sector has remained relatively low so far. Hence, this study was conducted with the main objective of investigating and analyzing factors that determine domestic private investment in Ethiopia by using the framework of VAR and vector error correction mechanism using annual data covering the period from 1971 to 2014. The regression results show that public investment, real GDP, exchange rate and credit have significant positive long run effect on private investment, while interest rate has significant negative long run effect. In the short run, exchange rate has significant positive contribution to private investment, while inflation has significant short run negative effect on private investment after one lags. Hence, to promote the performance of private sector in the country, it is essent...

The objective of this study is to show the effect of inflation on savings in a Small open economy Ethiopia for the period 1974-2014 using autoregressive distributed lag (ARDL) and ECM. The result of Cointegration test, using ARDL bounds testing approach, indicates the existence of long run relationship among the variables entered in the regression model and between inflation and national saving .To explores the direction of causality between inflation and National saving Granger Causality test has been employed. The direction of causation test indicated the existence of unidirectional causality running from inflation to saving, but saving does not granger causes inflation. Further, the long run estimation result shows that there is significant positive effect of inflation on national saving in the long run and insignificant negative effect in the short run.