Awet Tekie Bahta

Monetary Policy and Its Application in Ethiopia: Monetary Policy Rules in Ethiopia Awet Tekie Bahta

The search for a descriptive rule is the case of Ethiopia is of great interest. On the one hand the national bank of Ethiopia does try to follow announced target (before 2006/07 the national bank was focused up on the growth of money supply and the nominal exchange rate. after 2006/07 the focus shifted towards inflation fighting .on the other hand when it is necessary the bank of Ethiopia deviates from declared targets and this case its policy can be treated as rather discretionary. The monetary policy rule of was estimated using the standard techniques namely OLS (ordinary least square) methodology. From this it can be concluded that the monetary policy of Ethiopia is mainly dependent up on the three macro-economic indicators-inflation, GDP (gross domestic product), exchange rate. Such approach fully compile with the theory and practical of monetary regulations.