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<p>How does a food shock travel through a developing-economy price system? The textbook New Keynesian model, built for advanced economies, gives an incomplete answer. Three Ethiopian features expose the gap. Households sit close to a subsistence floor, so food shocks bite non-linearly. The labour market runs in two gears—formal wages lag, informal wages move with prices. Institutional pay-setting slows organised-sector adjustment even as food prices climb. Grafting these features onto a monopolistic-competition setup produces a closed-form pass-through of 0.671, with direct input costs and wages carrying most of the weight. Two estimates bracket the empirical answer. A Newey–West HAC distributed-lag specification on the primary sample (January 2019–May 2025, N = 75) gives ξ̂ = 0.596 [95% CI 0.488–0.704]; the ARDL (2,6) long-run multiplier sits higher at 0.718 [0.496–0.941]. Both intervals contain the 0.671 benchmark. A 2SLS check using CHIRPS rainfall and World Bank Pink Sheet instruments lifts the estimate to 0.820 [0.620–1.020] after the endogeneity correction (Kleibergen–Paap F = 17.3; p &lt; 0.0001). None of the three figures refutes the model. Peak VAR impulse response arrives at horizon h = 12–13&#xa0;months. Granger causation runs one way—food to non-food (p = 0.0055). Break tests line up four regime shifts with documented events: the COVID-19 onset, the 2021–2022 Triple Crisis, the subsequent monetary tightening, and the July 2024 exchange-rate liberalisation. For the National Bank of Ethiopia, headline rather than core inflation targeting fits the numbers. Pourroy et al. (<CitationRef CitationID="CR28">2016</CitationRef>) arrive at the same prescription on cross-country grounds; we anchor it instead in Ethiopian-specific structural identification. The post-reform window is short (N = 11), so we stop short of causal claims.</p>

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Food inflation transmission through wage-price spirals in Ethiopia’s dual economy: a theoretical model with empirical validation

  • 期刊论文

  • 发表日期：

    2026年6月19日

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  • Gudi V. Chandra Sekhar,
  • Pal Both Dol,
  • Chekol Alemu

摘要

How does a food shock travel through a developing-economy price system? The textbook New Keynesian model, built for advanced economies, gives an incomplete answer. Three Ethiopian features expose the gap. Households sit close to a subsistence floor, so food shocks bite non-linearly. The labour market runs in two gears—formal wages lag, informal wages move with prices. Institutional pay-setting slows organised-sector adjustment even as food prices climb. Grafting these features onto a monopolistic-competition setup produces a closed-form pass-through of 0.671, with direct input costs and wages carrying most of the weight. Two estimates bracket the empirical answer. A Newey–West HAC distributed-lag specification on the primary sample (January 2019–May 2025, N = 75) gives ξ̂ = 0.596 [95% CI 0.488–0.704]; the ARDL (2,6) long-run multiplier sits higher at 0.718 [0.496–0.941]. Both intervals contain the 0.671 benchmark. A 2SLS check using CHIRPS rainfall and World Bank Pink Sheet instruments lifts the estimate to 0.820 [0.620–1.020] after the endogeneity correction (Kleibergen–Paap F = 17.3; p < 0.0001). None of the three figures refutes the model. Peak VAR impulse response arrives at horizon h = 12–13 months. Granger causation runs one way—food to non-food (p = 0.0055). Break tests line up four regime shifts with documented events: the COVID-19 onset, the 2021–2022 Triple Crisis, the subsequent monetary tightening, and the July 2024 exchange-rate liberalisation. For the National Bank of Ethiopia, headline rather than core inflation targeting fits the numbers. Pourroy et al. (2016) arrive at the same prescription on cross-country grounds; we anchor it instead in Ethiopian-specific structural identification. The post-reform window is short (N = 11), so we stop short of causal claims.