Exchange Rate Passthrough to Import and Consumer Prices: Evidence from Ethiopia

Abstract

The fact that Ethiopia adopted managed floating exchange rate policy since 1992 as well as various trade reform measures taken makes the country’s import and consumer prices susceptible to the effects of exchange rate movements. Thus, the study investigates the degree of ERPT to import and consumer prices in Ethiopia between 1991/92 and 2010/11 using Structural Vector Autoregressive (SVAR) model where the degree of pass-through is estimated by the means of impulse response functions. The paper found that ERPT in Ethiopia during the period under review is significant, moderate and persistent in the case of import price and low and short lived in the case of consumer prices. These results are robust to a number of alternative  specifications of the model, such as the use of different ordering and identification schemes.