摘要：This paper examines the effect of devaluation on domestic price along with the effect of changes in Money Supply (MS), World Commodity Price Index (WCPI) and the Output gap on the Consumer Price Index (CPI) in Ethiopia for the period 1995 to 2017 on the basis of secondary data using bound testing (ARDL) approach of co-integration. The result of ARDL in the short run shows that devaluation of the nominal effective exchange rate (NEER) has no significant effect on CPI although money supply and WCPI have a positive and significant effect. The speed of adjustment from previous quarter’s disequilibrium in CPI to current quarter’s equilibrium is fast in each period. In the long run, the NEER, MS and WCPI have positive and significant effect on the CPI. The result of Granger causality test shows that there is a unidirectional causality from nominal effective exchange rate and money supply to the CPI although there is bidirectional causality between CPI and WCPI. The result of impulse response function shows that devaluation increases CPI in each period. The result of variance decomposition shows that, at the initial period, the cause of variation in all the variables are from the variables themselves although the effect declines with time. The study may suggests avoiding continuous and high devaluation of the Birr to the extent possible to avoid the evil consequences of devaluation on the standard of living of the people.
关键词：Exchange rate – pass through; Consumer price index; Devaluation; Money supply; World commodity price index
