The purpose of the study is to examine the relationship between inflation and economic growth in Ethiopia over the period of 1991/92- 2014/15 by using data at quarter base. The study was employed Johansen method of co-integration and vector error correction model and a technique of conditional least square.

The result shows that both in long-run and short-run the relationship between inflation and economic growth is positive. Despite to this, the granger causality test tells us bi- directional causation between these two variables. The result also revealed that threshold level of inflation beyond on which inflation negatively affects economic growth of Ethiopia is 5 percent. Therefore, co-ordination between macro- economic policy makers is vital and should have to raise their hands and put their eyes on measures that keep down inflation below 5 percent to have sustainable economic growth in the country.

Extrait

Inhaltsverzeichnis (Table of Contents)

1: Introduction
1.1 Background of the Study
1.2 Statement of the Problem
2: Literature Review
2.1 Definition
2.2 Theoretical Literature
2.3 Empirical Literature
2.3.1 Global Empirical Literature Review
2.3.2 Empirical Literature Review on Ethiopia
3: Methodology
3.1 Model Specification and Description of Variables
3.2 Source of Data
3.3 Estimation Method
4: Results and Discussion
4.1 Descriptive Analysis
4.2 Econometric Analysis
4.2.1 Unit Root Test and Co-integration Analysis
4.2.2 Vector Error Correction Model
4.2.3 Model Stability and Diagnostic Tests
4.2.4 Granger Causality Test
4.2.5 Estimation of Threshold Inflation

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study aims to analyze the relationship between inflation and economic growth in Ethiopia using a time series approach. The research investigates the nature and strength of this relationship, considering both theoretical frameworks and empirical evidence specific to the Ethiopian context. The study also explores the causal relationship between the two variables and attempts to determine a potential threshold level of inflation.

The relationship between inflation and economic growth in Ethiopia.
Empirical analysis of the Ethiopian economy using time series data.
Identification of causal relationships between inflation and economic growth.
Determination of a potential inflation threshold for optimal economic growth in Ethiopia.
Application of econometric techniques such as unit root tests, co-integration analysis, and Vector Error Correction Models (VECM).

Zusammenfassung der Kapitel (Chapter Summaries)

1: Introduction: This introductory chapter sets the stage for the research by providing background information on the Ethiopian economy and its historical relationship with inflation. It clearly defines the research problem—examining the complex interplay of inflation and economic growth in the Ethiopian context—and justifies the need for this study. It likely outlines the study’s objectives and methodology. The chapter will also present a brief overview of the subsequent chapters’ structure and content.

2: Literature Review: This chapter delves into existing literature on the inflation-growth nexus, both theoretical and empirical. It reviews various economic theories explaining the relationship, including those suggesting a positive, negative, or non-linear relationship, depending on the level of inflation. The chapter also reviews empirical studies conducted globally and specifically within Ethiopia. This review will serve to contextualize the current research within existing knowledge and highlight any gaps in the literature that the study addresses. It likely examines different methodologies and findings from previous research.

3: Methodology: This chapter details the methodological approach adopted in the study. It will specify the econometric model used, define the variables involved (likely including measures of inflation and economic growth, such as GDP), explain the source of the data used (likely time series data for Ethiopia), and justify the choice of estimation techniques. The chapter's clarity and precision are crucial for the reproducibility and validity of the study's findings. It will also justify the choices made in handling potential econometric challenges.

4: Results and Discussion: This chapter presents the findings of the econometric analysis. It begins with descriptive statistics summarizing the data. Subsequent sections will present the results of various econometric tests, such as unit root tests to determine the stationarity of the variables, co-integration tests to examine long-run relationships, and Vector Error Correction Model (VECM) estimation to capture both short-run dynamics and long-run equilibrium. The results of Granger causality tests to determine the direction of causality will also be discussed. This chapter critically interprets the statistical outputs, linking them to the theoretical framework and relevant literature.

Schlüsselwörter (Keywords)

Inflation, economic growth, Ethiopia, time series analysis, econometrics, unit root test, co-integration, Vector Error Correction Model (VECM), Granger causality, threshold inflation, GDP.

Frequently Asked Questions: Analysis of Inflation and Economic Growth in Ethiopia

What is the main topic of this research paper?

This research paper analyzes the relationship between inflation and economic growth in Ethiopia using time series econometrics. It investigates the nature and strength of this relationship, explores causal links, and attempts to identify a potential inflation threshold for optimal growth.

What are the key objectives of the study?

The study aims to:

Examine the relationship between inflation and economic growth in Ethiopia.
Conduct empirical analysis using Ethiopian time series data.
Identify causal relationships between inflation and economic growth.
Determine a potential inflation threshold for optimal economic growth.
Apply econometric techniques such as unit root tests, co-integration analysis, and Vector Error Correction Models (VECM).

What methodology is used in this research?

The study employs a time series approach. The methodology includes specifying an econometric model, defining relevant variables (inflation and economic growth indicators), sourcing time series data for Ethiopia, and using estimation techniques such as unit root tests, co-integration analysis, and Vector Error Correction Models (VECM) to analyze the data. The choice of methods and their justifications are detailed in the methodology chapter.

What are the main chapters and their content?

The paper is structured as follows:

Introduction: Provides background on the Ethiopian economy, states the research problem, outlines objectives, and details the study's structure.
Literature Review: Reviews existing theoretical and empirical literature on the inflation-growth nexus, both globally and specifically in Ethiopia.
Methodology: Describes the econometric model, variables, data sources, and estimation techniques used.
Results and Discussion: Presents descriptive statistics, econometric test results (unit root tests, co-integration, VECM, Granger causality), and interprets the findings in relation to the theoretical framework and existing literature.

What are the key findings (in general terms)?

The detailed findings are presented in the "Results and Discussion" chapter. The study aims to determine the nature (positive, negative, or non-linear) and strength of the relationship between inflation and economic growth in Ethiopia, identify causal relationships, and potentially identify a threshold level of inflation that maximizes economic growth. Specific results regarding unit root tests, co-integration, VECM estimations, and Granger causality tests will be detailed in the full study.

What are the key keywords associated with this research?