The Impct of Fiscal Policy on Inflation in Ethiopia; A Time Series Analysis

Kassa, Amare Worku (2022) The Impct of Fiscal Policy on Inflation in Ethiopia; A Time Series Analysis. Masters thesis, Ethiopian Civil Service University.

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Abstract

The The basic aim of this study was to conduct the effect of fiscal policy on inflation; Inflation reflects a reduction in the purchasing power per unit of money that is a loss of real value in the medium of exchange and unit of account within the economy. The research employed both descriptive statistics analysis and time series econometric analysis techniques. Specifically, the study sets out to assess the trend of inflation and government expenditure and to examine if there exist long-run and the short-run relationships of government expenditure and government budget deficit with inflation in Ethiopia with annually time series data spanning from 1975 to 2019. For this study, the researcher uses government capital expenditure (GKE), government current expenditure (GCE), and government budget deficit (GBD) as the main explanatory variables while broad money supply (LM2) and exchange rate (EXR) were added as check variables. The vector error correction model (VECM) was used to analyze the relationship between government expenditure and inflation in Ethiopia. The result show government current expenditure and government budget deficit have a positive and significant effect on inflation in the long run but government current expenditure has positive insignificant while one year lagged government budget deficit has a positive and significant effect on inflation in the short run, on the other hand, government capital expenditure has a negative and significant effect on inflation both in the long run as well as in the short run in Ethiopia. Based on the result this research strongly recommends the government of Ethiopia keep enhancing its capital expenditure by narrowing its budget deficit by cutting its current expenditure.

Item Type:	Thesis (Masters)
Uncontrolled Keywords:	inflation, Budget Deficit, ethiopia, ECSU,ECSU project,Ethiopian Civil Service University,Development Economics
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Africana
Depositing User:	mr Amare Worku Kassa
Date Deposited:	29 Nov 2022 07:09
Last Modified:	29 Nov 2022 07:09
URI:	http://thesisbank.jhia.ac.ke/id/eprint/9782

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