### detected.

_Dummies_ : Meher = main harvest season = 1 for September-February; foodpeaks = Food price peaks = 1 for 1999:1; 2000:7; 2008:5-9; 2011:3-10; fooddrops = Food price drops: 2000:9-12; 2008:10-12; cerealjumps = Cereal price jumps = 1 for 1999:2, 6-9; 2001:1; 2005:6; 2008:3, 5-7; 2011: 3-6; 2012:3; 2017:7-11; cerealdeeps = Cereal price deeps = 1 for 1997:12; 1998:11,12; 1999:1; 2003:12; 2008:11, 12; cpi_jul2000 = 1 for 2000:7; cpi_sep2000 = 1 for 2000:9.

## **Further robustness checks**

This study tested for the robustness of the regression results and stability of the models in two ways. First, the cereal output gap was replaced with the overall GDP gap. The overall GDP gap was found to be insignificant, while the results for other regressors remained unchanged. The results are presented in Tables B1 and B2 in the Appendix.

Second, the models were estimated over the 2005-2020 period, characterized by a high-growth high-inflation regime and corresponding with the end of the IMF program. The two key differences are that the coefficients on the cereal output gap are positive, and the R-square measures are lower. The lower R-square measures are due to the fact that the sample period is shorter and witnessed less frequent supply shocks, hence less volatile inflation. All the other results remain unchanged. The results are reported in Tables B3 and B4 in the Appendix. Overall, these checks suggest that the models perform very well in explaining the determinants of inflation in Ethiopia.

# 7. Conclusion and policy implications

While the results are broadly in line with the findings from past studies using a similar approach, this study uncovers new insights that expand the understanding of the determinants of inflation in Ethiopia. The evidence from this study underscores the critical importance of considering structural supply-side factors, especially developments in the food sector in general and cereals in particular to understand the dynamics of inflation in Ethiopia. In the short run, shocks to cereal production—notably due to droughts—generate spikes in cereal and food prices, with spillover effects on overall inflation. In the long run, disequilibria in relative grain prices in Ethiopia vis-àvis world markets sustain inflation in the country. These results reflect the large share of cereals in household consumption, exposure of cereal production to natural shocks, and dependence on imported grains.

Unlike some previous studies, this paper finds evidence of significant long-run effects of disequilibria in the monetary sector, with a relatively slow adjustment process. The results suggest that monetary factors have both short-run and long-run effects on inflation in Ethiopia. Non-food inflation differs from other indices in that its long-run path is not affected by disequilibria in the monetary sector or any other sectors.

The fiscal sector, which has been missing or inadequately handled in previous studies, has both long-run and short-run impacts on inflation in Ethiopia. In the long run, disequilibria in the fiscal sector are absorbed comparatively slower than adjustments in the monetary sector. Public sector borrowing has strong short-run effects on all inflation measures. This implies that the search for the determinants of inflation in Ethiopia in the existing literature may have been too narrow, so important policy insights may have been missed by not fully accounting for the effects of development in the fiscal sector in the analysis.

As in previous studies, growth in the stock of money appears to have a positive and significant effect on non-food inflation. This study finds that money growth also significantly and positively 24