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Inflation and Economic Growth: An Estimate of the Threshold Level of Inflation for Ethiopia


Although Ethiopia Has Been A Low Inflation Country, Recently, Double Digit Inflation Has Become One Of The Main Macroeconomic Concerns Of Policy Makers And The Society. By Adopting The Threshold Approach, This Paper Is Primarily Meant To Estimate The Optimal Level Of Inflation In Ethiopia Around Which Inflation Affect Economic Growth Optimally. Applying This Modeling Technique On The Data From 1971-2010, This Paper Established That Inflation Level Of About 8-10 Percent Is Optimal For Ethiopia. Any Inflation Level Significantly Above Or Below This Level May Be A Deterrent To Long-Term And Sustainable Economic Growth. Hence, The Monetary Authority (National Bank Of Ethiopia) Should Work To Maintain The Inflation Level Close To The Threshold Level. Good Monetary And Fiscal Policy Coordination Is Also Needed To Maintain The Inflation Level Around The Desirable Range. The Inflation Target Of 6 Percent Set In The Gtp May Not Only Be So Ambitious, Given The Current Context Of The Ethiopian Economy, But Also Is A Little Bit Below Our Threshold Estimate. The Estimation Result Is Robust To Alternative Specifications

Corporate Author: 
Getnet Alemu & Worku Gebeyehu (Editor) & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Ethiopian Economic Association (EEA)
Primary Descriptors: 

Threshold, Economic Growth

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Call Number: 
330.963 PRO 2012
Serial Key Title: 
Proceedings of the Ninth International Conference on the Ethiopian Economy
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Publication date: 
2013-06-27 23:12:00
Forum or Discussion date: 
2013-02-27 15:43:29
Place of publication: 
Addis Ababa, Ethiopia
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