Version 1
: Received: 11 December 2020 / Approved: 13 December 2020 / Online: 13 December 2020 (21:32:13 CET)
How to cite:
Tenaw, D.; Demeke, H. Inflation Threshold Effects on Growth in Ethiopia: Evidence from Food and Non-food Sectors. Preprints2020, 2020120301. https://doi.org/10.20944/preprints202012.0301.v1
Tenaw, D.; Demeke, H. Inflation Threshold Effects on Growth in Ethiopia: Evidence from Food and Non-food Sectors. Preprints 2020, 2020120301. https://doi.org/10.20944/preprints202012.0301.v1
Tenaw, D.; Demeke, H. Inflation Threshold Effects on Growth in Ethiopia: Evidence from Food and Non-food Sectors. Preprints2020, 2020120301. https://doi.org/10.20944/preprints202012.0301.v1
APA Style
Tenaw, D., & Demeke, H. (2020). Inflation Threshold Effects on Growth in Ethiopia: Evidence from Food and Non-food Sectors. Preprints. https://doi.org/10.20944/preprints202012.0301.v1
Chicago/Turabian Style
Tenaw, D. and Helen Demeke. 2020 "Inflation Threshold Effects on Growth in Ethiopia: Evidence from Food and Non-food Sectors" Preprints. https://doi.org/10.20944/preprints202012.0301.v1
Abstract
Economists have long been interested in examining inflation-growth nexus. Nevertheless, the nature of their relationship and the optimal level of inflation threshold for economic growth have still remained controversial in both theoretical and empirical works. Accordingly, this study investigates the existence of threshold effects of inflation on economic growth in Ethiopia over the period 1975-2018 using a Two-regime Threshold Auto-regressive (TAR) model. The study mainly departs from previous works since it estimates sector-specific inflation threshold level in food and non-food sectors. Our preliminary analyses clearly reveal that inflation in food sector has become more volatile, less-persistent and key contributor to the general inflation as compared to its non-food counterpart. Further, The TAR model results and robustness checks indicate the existence of inflation threshold in a range of 9-10%. In particular, the threshold level for food inflation is 10% and 8% for non-food inflation. In all cases, our results robustly confirm growth-detrimental effects of inflation after the threshold levels. After all, this study suggests the need for considering specific behaviors of food and non-food prices, and implementing appropriate fiscal and monetary policies to bring inflation down to a single-digit level.
Keywords
Food and non-food inflation; Threshold; TAR model; Economic Growth; Ethiopia
Subject
Business, Economics and Management, Economics
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
