Determinants of Real Exchange Rate in Ethiopia

Asfawosen, Adugna

dc.contributor.author	Asfawosen, Adugna
dc.date.accessioned	2017-10-23T05:46:59Z
dc.date.available	2017-10-23T05:46:59Z
dc.date.issued	2017-10
dc.identifier.uri	http://hdl.handle.net/123456789/8065
dc.description.abstract	This study aims to examine the determinants of real exchange rate in Ethiopia by using annual time series data covering from 1980 to 2015. The estimated model is based on the inter-temporal optimising framework of Edwards (1989). This relationship is explained using both descriptive and econometric analysis to make the paper clear and attainable. This study had employed Johansen Co-integration and error correction technique in the context of Hendry’s general-to-specific modelling and Vector Autoregressive (VAR) specification with variance decomposition, and impulse response analyses to provide robust short run and long run effects on the real exchange rate in Ethiopia. The results show that ratio of investment to GDP, government consumption of non-tradable goods, technological progress and TOT are the variables that have been found to have a long run relationship with the RER. This study indicates that the estimate of speed of adjustment coefficient found that about a 41 percent of the variation in the real exchange rate is corrected within a year from its equilibrium level. The regression result of VECM reveals that nominal exchange rate and ratio of investment to GDP were the variables significantly affecting the RER in the short run. Moreover, the variance decomposition and impulse response analysis corroborates a better picture of the short run dynamics. The analysis provided that the shocks to nominal exchange rate and ratio of investment to GDP have persistent effects on the real exchange rate in the short run. Hence, for a real depreciation to be sustained, policy makers should strengthen efforts on supply side policies that improve productivity are constructive in Ethiopia. Moreover, it is also important government to fix real exchange rate at sustainable level continually. Keywords: Ethiopia, Real Effective Exchange Rate, Co-integration, Vector Autoregression	en_US
dc.language.iso	en_US	en_US
dc.subject	ECONOMICS	en_US
dc.title	Determinants of Real Exchange Rate in Ethiopia	en_US
dc.type	Thesis	en_US