Price stability and achieving sustainable economic growth are the major goals of macroeconomic policy and the key indicators of macroeconomic stability. Pursuing of price stability is primary to long-run growth and development; it should be the concern of every economy. This study investigated the nexus of inflation and economic growth in Ethiopia, using the vector autoregressive (VAR) model by employing the data series for the period ranging from 1980 to 2021. The ADF Unit root test confirmed that the variables in the model are integrated of order I (0). The descriptive statistics concludes that the relationship between inflation and economic growth are inconclusive. From VAR regression result, the lagged value of inflation has positive and significant effect on inflation at 1% level of significance. But the lagged value of economic growth has insignificant effect on inflation in Ethiopia. On the other hand, the lagged value of economic growth has positive and significant effect on economic growth and the lagged value of inflation has positive and significant effect on economic growth at 1% level of significance. The estimated model passes diagnostic tests and the Eigen value stability condition displays all the Eigen values lay inside the unit circle. Hence, VAR satisfies stability condition. Long run sustainable development emphasis should be given to accelerate economic growth and compute the threshold inflation-growth level, so that growth rate takes care of the stability in inflation.
| Published in | International Journal of Finance and Banking Research (Volume 9, Issue 5) |
| DOI | 10.11648/j.ijfbr.20230905.14 |
| Page(s) | 97-104 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Inflation, Economic Growth, Vector Autoregressive Model, Akaike Information Criterion
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APA Style
Haymanot Bassie Mognhod. (2023). Inflation Nexus Economic Growth in Ethiopia: Implications for Long-Run Development. International Journal of Finance and Banking Research, 9(5), 97-104. https://doi.org/10.11648/j.ijfbr.20230905.14
ACS Style
Haymanot Bassie Mognhod. Inflation Nexus Economic Growth in Ethiopia: Implications for Long-Run Development. Int. J. Finance Bank. Res. 2023, 9(5), 97-104. doi: 10.11648/j.ijfbr.20230905.14
AMA Style
Haymanot Bassie Mognhod. Inflation Nexus Economic Growth in Ethiopia: Implications for Long-Run Development. Int J Finance Bank Res. 2023;9(5):97-104. doi: 10.11648/j.ijfbr.20230905.14
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Download@article{10.11648/j.ijfbr.20230905.14,
author = {Haymanot Bassie Mognhod},
title = {Inflation Nexus Economic Growth in Ethiopia: Implications for Long-Run Development},
journal = {International Journal of Finance and Banking Research},
volume = {9},
number = {5},
pages = {97-104},
doi = {10.11648/j.ijfbr.20230905.14},
url = {https://doi.org/10.11648/j.ijfbr.20230905.14},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20230905.14},
abstract = {Price stability and achieving sustainable economic growth are the major goals of macroeconomic policy and the key indicators of macroeconomic stability. Pursuing of price stability is primary to long-run growth and development; it should be the concern of every economy. This study investigated the nexus of inflation and economic growth in Ethiopia, using the vector autoregressive (VAR) model by employing the data series for the period ranging from 1980 to 2021. The ADF Unit root test confirmed that the variables in the model are integrated of order I (0). The descriptive statistics concludes that the relationship between inflation and economic growth are inconclusive. From VAR regression result, the lagged value of inflation has positive and significant effect on inflation at 1% level of significance. But the lagged value of economic growth has insignificant effect on inflation in Ethiopia. On the other hand, the lagged value of economic growth has positive and significant effect on economic growth and the lagged value of inflation has positive and significant effect on economic growth at 1% level of significance. The estimated model passes diagnostic tests and the Eigen value stability condition displays all the Eigen values lay inside the unit circle. Hence, VAR satisfies stability condition. Long run sustainable development emphasis should be given to accelerate economic growth and compute the threshold inflation-growth level, so that growth rate takes care of the stability in inflation.
},
year = {2023}
}
TY - JOUR T1 - Inflation Nexus Economic Growth in Ethiopia: Implications for Long-Run Development AU - Haymanot Bassie Mognhod Y1 - 2023/10/28 PY - 2023 N1 - https://doi.org/10.11648/j.ijfbr.20230905.14 DO - 10.11648/j.ijfbr.20230905.14 T2 - International Journal of Finance and Banking Research JF - International Journal of Finance and Banking Research JO - International Journal of Finance and Banking Research SP - 97 EP - 104 PB - Science Publishing Group SN - 2472-2278 UR - https://doi.org/10.11648/j.ijfbr.20230905.14 AB - Price stability and achieving sustainable economic growth are the major goals of macroeconomic policy and the key indicators of macroeconomic stability. Pursuing of price stability is primary to long-run growth and development; it should be the concern of every economy. This study investigated the nexus of inflation and economic growth in Ethiopia, using the vector autoregressive (VAR) model by employing the data series for the period ranging from 1980 to 2021. The ADF Unit root test confirmed that the variables in the model are integrated of order I (0). The descriptive statistics concludes that the relationship between inflation and economic growth are inconclusive. From VAR regression result, the lagged value of inflation has positive and significant effect on inflation at 1% level of significance. But the lagged value of economic growth has insignificant effect on inflation in Ethiopia. On the other hand, the lagged value of economic growth has positive and significant effect on economic growth and the lagged value of inflation has positive and significant effect on economic growth at 1% level of significance. The estimated model passes diagnostic tests and the Eigen value stability condition displays all the Eigen values lay inside the unit circle. Hence, VAR satisfies stability condition. Long run sustainable development emphasis should be given to accelerate economic growth and compute the threshold inflation-growth level, so that growth rate takes care of the stability in inflation. VL - 9 IS - 5 ER -
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