Monetary, fiscal, and structural drivers of inflation in Ethiopia: new empirical evidence from time series analysis

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Inflation and Growth in Developing Economies: a Tribute to Professor Thirlwall

“…There is a growing body of empirical evidence which shows that the money supply is endogenously determined in non-Latin American developing countries (see the comprehensive survey in Vera, Guijarro, and Pérez, 2022). Moreover, structural and cost-push sources of inflation appear to play a dominant role relative to monetary factors in low-income African countries (Heintz and Ndikumana, 2011;Durevall, Loening, and Yohannes, 2013;Nguyen et al, 2017;Ndikumana et al, 2023), as well as in emerging market economies such as South Africa (Nell, 2004(Nell, , 2018.…”

“…As emphasised throughout this paper, with specific reference to Thirlwall's (1974b) isgd book, inflation thresholds in developing countries would tend to be higher than developed countries because structural sources of inflation (supply bottlenecks between expanding and contracting sectors, foreign exchange bottlenecks, an underdeveloped agriculture sector and a widening budget deficit from autonomous increases in food prices) are more dominant in underdeveloped economies. The overview of the empirical evidence for African countries in section 2 suggests that structural and cost-push sources of inflation tend to dominate monetary factors (Nell, 2004(Nell, , 2018Heintz and Ndikumana, 2011;Durevall, Loening, and Yohannes, 2013;Nguyen et al, 2017;Ndikumana et al, 2023). In addition, there is growing evidence that the money supply in developing economies is endogenously determined (Vera, Guijarro, and Pérez, 2022) 3 .…”