This study examined the effect of monetary policies on Total Trade (proxy of international trade) in Ethiopia between 1989 to 2019.International trade was captured using Total Trade (proxy of international trade) while the independent variables that described the various macroeconomic policies in Ethiopia were money supply, exchange rate, real lending rate and inflation rate. Time series data on the variables of the study was gotten from Annual reports of the National Bank of Ethiopia (NBE) from 1989-2019. The secondary data was analyzed using E-views 9.0 software. A model was formulated for the study. The Augmented Dickey Fuller (ADF) stationary test showed that the variables in the study were stable at both levels and at first difference. The regression of the independent variables with Total Trade (proxy of international trade) showed the existence of a long run relationship. Using the Autoregressive Distribute Model (ARDL), the empirical results money supply exerts a significant positive effect on Total Trade (proxy of international trade) in the long run while real lending rate and inflation rate exerts a significant negative effect on Total Trade (proxy of international trade) in the long run and Total Trade (proxy of international trade) one period lag of the variable significantly affects the Total Trade (proxy of international trade) in the short run. LagTT or D(LTT(-1)), a one percent increase in expectation push Total Trade (proxy of international trade) by 51% in short run. This result is similar to the theory of adaptive expectations, they states that individuals will form future expectations based on past events. The study thus concluded that the monetary policy channels through which Total Trade (proxy of international trade) in Ethiopia can be influenced are money supply, lending rate and inflation rate. The study testes all the diagnostic test like serial correlation, Normality, heteroschedasticity and stability. The estimate of the speed of adjustment coefficient found in this study indicates that about a 75% of the variation in the Total Trade (proxy of international trade) from its equilibrium level is corrected within a year.
Table of Contents
CHAPTER ONE
1.1 INTRODUCTION
1.2 Statement Problem
1.3 Objectives
1.3.1 General Objectives
1.3.2 Specific Objectives
1.4. Scope of the Study
1.5. Significance of the Study
1.6. Organization of the Study
CHAPTER TWO
2. LITERATURE REVIEW
2.1. Theoretical Literature
2.2 Empirical Review
CHAPTER THREE
3. Research Methodology
3.1. Data Source
3.2. Model specification
3.3. Estimation Method
3.3.1 Unit roots
3.4 Diagnostic Tests
CHAPTER FOUR
4. Estimated Results and Interpretation
4.1 Unit Root Test
4.2. Testing for Bounds Test or Co-Integration
4.3. Diagnostic test Checking
4.4. Long run model
4.5 Short Run/Error Correction Model
CHAPTER FIVE
CONCLUSIONS AND RECOMEDATIONS
5.1 CONCLUSIONS
5.2 RECOMMENDATIONS
Research Objectives and Themes
This study aims to empirically investigate the impact of various monetary policy instruments, specifically money supply, exchange rates, real lending rates, and inflation, on the international trade performance of Ethiopia between 1989 and 2019.
- The role of monetary policy as a macroeconomic management tool.
- The relationship between money supply and international trade growth.
- The influence of inflation and lending rates on trade investment.
- The application of the Autoregressive Distributed Lag (ARDL) model in time series analysis.
Excerpt from the Book
1.1 INTRODUCTION
Monetary policy is one amongst the macro-economic instruments with which nations do manage the economics. Economic growth is essential in an economy as it reduces poverty as well as improving livelihoods. The growing importance of monetary policy has made its effectiveness in influencing economic growth a priority to most governments. Despite the dearth of consensus among economists on how monetary policy actually works and on the magnitude of its effect on the economy, there's a noteworthy strong agreement that it's some measure of effects on the economy (Nkoro, 2005). Monetary policy is a combination of measures designed to regulate the value, supply and cost of money in an economy, in consonance with the expected level of economic activity (Folawewo and Osinubi, 2006). Ajayi (2014) opined that the objectives of monetary policy include price stability, maintenance of balance of payments equilibrium, promotion of employment and output growth, and sustainable development. The pursuit of price stability invariably implies the indirect pursuit of other objectives such as economic growth, which can only take place under conditions of price stability and allocative efficiency of financial markets. Monetary policy aims at ensuring that money supply is at a level that is consistent with the growth target of real income, such that non-inflationary growth will be ensured.
Summary of Chapters
CHAPTER ONE: Provides an introduction to the study, defining the research problem, objectives, and the scope regarding the relationship between monetary policy and international trade in Ethiopia.
CHAPTER TWO: Covers the theoretical and empirical literature review, detailing Keynesian and classical trade theories and reviewing previous studies on monetary policy effects.
CHAPTER THREE: Outlines the research methodology, including the data source, model specification, and the specific use of the ARDL approach to analyze the time series data.
CHAPTER FOUR: Presents the empirical findings, including unit root tests, co-integration analysis, and the estimation of long-run and short-run coefficients using the ARDL model.
CHAPTER FIVE: Concludes the study by summarizing the findings and providing policy recommendations aimed at improving Ethiopia's export sector and overall international trade balance.
Keywords
Monetary Policy, Total Trade, International Trade, Autoregressive Distributed Lag (ARDL), Augmented Dickey Fuller (ADF), Ethiopia, Money Supply, Exchange Rate, Inflation, Real Lending Rate, Economic Growth, Co-integration, Short Run, Long Run, Macroeconomic Stability.
Frequently Asked Questions
What is the primary focus of this research?
The research examines the effectiveness of various monetary policy instruments, such as money supply, exchange rates, and inflation rates, in influencing the international trade performance of Ethiopia from 1989 to 2019.
What are the central themes of the work?
The central themes include the mechanism of monetary policy, the drivers of foreign trade, the challenge of maintaining price stability, and the role of sustainable economic growth in developing countries.
What is the main objective of the study?
The main objective is to establish whether a significant long-run relationship exists between monetary policy variables and total trade in Ethiopia and to provide policy recommendations based on these findings.
Which scientific method is employed?
The study uses a quantitative approach, specifically the Autoregressive Distributed Lag (ARDL) model, to perform co-integration and time series analysis on secondary data obtained from the National Bank of Ethiopia.
What is discussed in the main body of the work?
The main body discusses the theoretical foundations of monetary policy and trade, the methodology for testing stationarity and long-run relationships, and the interpretation of the estimated econometric results.
Which keywords characterize this paper?
Key terms include Monetary Policy, Total Trade, ARDL, Ethiopia, Money Supply, Inflation, and Co-integration.
How does inflation affect international trade according to the findings?
The study finds that inflation exerts a significant negative effect on international trade in the long run because it undermines the purchasing power of the currency and discourages investment.
What does the ARDL model reveal about the speed of adjustment?
The error correction term in the ARDL model indicates a high speed of adjustment (approximately 75% correction within a year), meaning that deviations from the long-run equilibrium are efficiently corrected.
- Citar trabajo
- Gediyon Bekele Moliso (Autor), 2021, Effects of Monetary Policy on International Trade in Ethiopia, Múnich, GRIN Verlag, https://www.grin.com/document/1143539
