The Effect Of Devaluation On Major Macro Variables (the Ethiopian Case)

A Time series econometrics technique especially errorrncorrection Method employed for analyzing the efficiency ofrndevaluation on Ethiopian economy. Secondary data wasrncollected for the period 1964-1965 from different publicationrnand government office .rnEdward's real exchange, current account and output modelrnadopted for the study; moreover, Elbadawi' s real exchange andrnprice model was applied for the study.rnThe result confirmed that devaluation could not lead tornstagflation circumstance. It was rather expansionaryrn(increasing output and employment) and inflationary. Thernresult of this study adheres the view of that when initialrncondition of the economy at real exchange appreciation, nominalrndevaluation could accelerate the process of convergencerntowards its equilibrium. Devaluation improved the currentrnaccount balance because of the increment of aid to the countryrnafter devaluation; however, it did not improve the tradernbalance due to the fact that the premium declined considerablerndegree but not abolished.

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