Inflation, External market Performance and Government Policy: An Empirical Investigation Using VAR-VECM Approach in the Context of Ethiopia

Authors

Nardos M. Beyene, Western Michigan UniversityFollow

Abstract

This study aims at determining the effectiveness of demand management policies in stabilizing the macroeconomic environment of Ethiopian economy. Inflation and Balance of Payments are used as the two indicators of stability. The researcher made use of Co-integrated VAR approach and estimates inflation and balance of payments equations. All together the researcher used data for the period 1976-2011. The findings of the study imply the existence of two-way relationship between inflation and balance of payments. Excess balance of payment surplus leads to inflationary pressures in the economy while inflation booming deteriorates the country’s external balance.

Recommended Citation

Beyene, Nardos M. (2015) "Inflation, External market Performance and Government Policy: An Empirical Investigation Using VAR-VECM Approach in the Context of Ethiopia," International Journal of African Development: Vol. 3: Iss. 1, Article 3.
Available at: https://scholarworks.wmich.edu/ijad/vol3/iss1/3