Thesis Open Access
A thesis submitted to the School of Graduate Studies of Addis Ababa University in partial fulfillment of the requirements for the Degree of Masters of Science in Economics (Economic Policy Analysis) in the School of Economics
Teweldebrehan Tesfay
The study empirically investigates the relative effectiveness of fiscal and
monetary policies on economic growth in Ethiopia. With the objective of finding
out the relative strength of monetary and fiscal policies on economic growth, the
study used an unrestricted vector autoregressions (VARs) framework, based on
the St. Louis equation, to compute variance decompositions (VDCs) and impulse
response functions (IRFs). Neither government expenditure nor money supply
(M2) was found to be statistically significant in the co-integrating equations
estimated suggesting that the policy variables are neutral in the long run. The
results derived from the VDCs and IRFs imply that monetary policy alone has a
significantly positive impact on GDP growth in Ethiopia. However, the impact of
fiscal policy on GDP growth remains broadly insignificant. The outcome of this
study, thus, supports the views of the proponents of the St. Louis Model that
monetary policy is relatively more effective than fiscal policy in stimulating
economic activity.
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- Publication date:
- June 1, 2010
- DOI:
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- Communities:
- License (for files):
- Creative Commons Attribution