Determinants of Exchange Rate Movement in Ethiopia

Exchange rate can be defined in different ways but the general definition may be the price of one nation’s currency in terms of another currency. The objective of this study was determining factors which contribute for the movement of exchange rate in Ethiopia. Nine years data was taken starting from 2007 up to 2016 which the most updated information. This paper used yearly panel data analysis; the data was collected for 9 years which started from the year 2007 until 2016 were most upto date data. SPSS used as statistical analysis tools. The relation between factors and exchange rate is consistent with theory and it is so difficult to say the exchange rate movement is as a result those major factors. The regression weight result shows that the above factors are not significant to determine the exchange rate. GDP seems that had significant impact for the determination exchange rate, however the correlation matrix evidence that the relation between GDP and exchange rate was positive. This is not support the theoretical relationship between these two variables. Political stability can be taken as the major factors affecting movement of exchange rate.