What are the determinants of money demand in Ethiopia? (2024)

What are the determinants of money demand in Ethiopia?

Whereas, the estimated coefficients of the short-run variable show that the real effective exchange rate, CPI inflation, and lagged real money balance are the main determinants of demand for money while the real GDP and real interest rate are insignificant.

What are determinants of money demand?

4. Methodology and model. Generally, money demand is usually formulated in terms of three important determinants, that is, income or wealth, interest rate and expected price change.

What are the determinants of economic growth in Ethiopia?

These factors include: natural resources, investment, human capital, innovation, technology, economic policies, foreign aid, trade openness, institutional framework, foreign direct investment, political factors, socio-cultural factors, geography, demography and many others.

What are the determinants of inflation in Ethiopia?

Finally, from the finding of our study in the short run, real effective exchange rate, money supply budget deficit and world oil price are the main determinant of inflation in Ethiopia.

What is the demand for money determined by?

Generally, the nominal demand for money increases with the level of nominal output (price level times real output) and decreases with the nominal interest rate. The real demand for money is defined as the nominal amount of money demanded divided by the price level.

What are the 5 demand Determinants?

Economists have identified five key determinants of demand: price, income, prices of related goods and services, tastes and preferences, and expectations. Each of these determinants plays a significant role in influencing how much of a good or service consumers are willing and able to purchase.

What are the determinants of the demand for money in developed and developing countries?

Factors such as income, interest rate, price level, deposit rate, wealth, required reserve, individual preference, payment habit and brokerage fee/risk, all determines the desire of people to hold cash (demand for money).

What does Ethiopia's economy depend on?

Ethiopia's economy is based on agriculture, which accounts for 46% of GDP and 85% of total employment.

What are the determinants of income inequality in Ethiopia?

On the other hand, the QRM result confirmed that age, gender, education level, marital status, family size, dependency, occupation, housing condition and remittances were the major determinants of income inequality in the study area.

What are the major economic problems in Ethiopia?

Ethiopia faces several economic problems. One of the main challenges is high inflation, which has negative effects on economic growth and stability. Another issue is poor export performance and weak trade balance, indicating a lack of external competitiveness.

What are the dynamics and determinants of inflation in Ethiopia?

The findings show that the major determinants of dynamics of inflation in Ethiopia are both monetary sector and structural factors. Specifically, the ARDL model shows that monetary determinants of inflation are money supply and the real interest rate.

What is the impact of inflation on Ethiopian economy?

This study shows the level of inflation is must keep below the threshold level because the inflation below some level of inflation brings positive impact to the economic growth but after this level it seriously hurts the growth of the economy of Ethiopia and as a result high inflation retards growth by reducing ...

What are the determinants of food price inflation in Ethiopia?

A unit increase in interest rate and money supply increases the food price inflation by 7.8% and 45% respectively. The demand side of the factors such as money supply can boost food price inflation in Ethiopia which justifies the quantity theory of money (QTM); inflation is always and everywhere the monetary phenomena.

What are the main determinants of money demand and money supply?

Key Takeaways

The lower the interest rate, the higher the quantities of money demanded for these purposes. The demand for money will change as a result of a change in real GDP, the price level, transfer costs, expectations, or preferences. We assume that the supply of money is determined by the Fed.

What are determinants of money supply?

The behaviour of the central bank, behaviour of the commercial banks and the behaviour of the general public respectively contributes to the determination of aggregate money supply in an economy.

What are the two determinants of an increase in the transactions demand for money?

The transactions demand for money is positively affected by the amount of real income and expenditure, and negatively affected by the interest rate on alternative assets, which is the opportunity cost of holding money for any reason. It also depends on the timing of expenditures and the length of the payment period.

What are the five major determinants of demand and explain how each one shifts the demand curve?

Five of the most common determinants of demand are the price of the goods or service, the income of the buyers, the price of related goods, the preference of the buyer, and the population of the buyers.

Which factor is the most important in determining demand?

What is the most crucial determinant of demand for an item?

Price. Price, in many cases, is likely to be the most fundamental determinant of demand since it is often the first thing that people think about when deciding how much of an item to buy.

What are the determinants of money supply in developing countries?

What are the four factors that determine money demand under the portfolio theory?

According to portfolio theory, the four factors determining money demand are: interest rates (lower interest rates increase money demand); wealth (higher wealth leads to higher money demand); risk of alternative assets (a greater risk of alternative assets tends to increase money demand); and liquidity of those other ...

What are the main factors that affect the money demand money market diagram?

The money demand curve represents the relationship between the quantity of money demanded and the interest rate in the economy. Some of the leading causes of the shift in the money demand curve include: changes in the aggregate price level, changes in real GDP, changes in technology, and changes in institutions.

How does Ethiopia make its money?

Ethiopia's exports are almost entirely agricultural. Coffee is the primary foreign-exchange earner; other exported products include khat, hides and skins, live animals, oilseeds, and gold.

What does Ethiopia need most?

Ethiopia's struggling economy will require substantial reform to unlock an IMF deal that could help with stability. Humanitarian needs due to conflict and climate shocks are at historic highs, with more than 20 million requiring assistance with food, shelter, medical care, and more.

What is the backbone of Ethiopian economy?

Ethiopia enjoys extremely varied climatic conditions -- from cool to very cold in the highlands, to one of the hottest places on earth at the Dallol Depression. Accounting for 47% of the GDP, agriculture is the backbone of Ethiopia's economy. 85% of Ethiopians live in rural areas and depend on agriculture.