Modeling and Forecasting Volatility of Food and Non-food Price in Ethiopia: A GARCH Modelling Approach

Abstract

This study aimed to model and forecast price volatility of food and nonfood prices in Ethiopia using the Generalized Autoregressive Conditional Heteroscedasticity Model. To achieve the objective, the study employs monthly data on monthly prices of food and non-food inflation from December 2000 to September 2020 collected from the Central Statistical Agency of Ethiopia. It finds that the long-run result showed that a 1% increase in the Food Price Index is associated with a 42.84% increase in the consumer price index keeping other variables constant. Therefore, stabilization policies to dampen high volatilities and a prudent fiscal policy as a means of avoiding sources of subgroup commodities imbalance are quite apparent to reduce the rapidly rising food prices and non-food prices in the country.