ESSAYS IN MACROECONOMICS

Abstract: Chapter one The aim of this paper is to examine the role of monetary and fiscal policies in explaining macroeconomic fluctuations in Ethiopia using a structural VAR approach, over the period 1997/1998:1 to 2016/17:4. Its mains results can be presented as follows: first, an increase in government spending has an expansionary effect on output, while an increase in tax revenue has a contractionary effect, with spending multipliers larger than net tax revenue multipliers; second, contractionary monetary policy is associated with a fall in output; third, monetary policy contributes to very small fluctuations in output and it is one of the responsible sources of the high and persistence inflation in the country; fourth, the contributions of fiscal policy shocks are larger than that of monetary policy shocks in explaining movements in output, with roughly equivalent contributions coming from shocks in fiscal policy components. Furthermore, the effects of fiscal and monetary policy shocks on output and inflation have improved qualitatively and quantitatively when both policy variables are jointly examined than estimating a separate model; suggesting the role of a joint analysis of fiscal and monetary policy shocks.