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Inflation Dynamics in Uganda: The role of disequilibria in the money and traded goods markets

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  • Jacob Opolot
  • Anita Mpagi

Abstract

This paper models inflation dynamics in Uganda using a error correction model. The long-run equilibrium relationships in the money market and external sector are estimated, and the two error-correction terms integrated into a short-run single equation error correction model. Consistent with the predictions of a small open economy model, money supply, exchange rate, foreign inflation, terms of trade and real output have a cointegrating relationship with inflation.. In the short- run, inflation is driven by changes in real output, monetary aggregates, the exchange rate, and foreign prices. The disequilibria in the money and traded goods markets is significant but the adjustment process is slow. The significance of the interest rate differential in the money-demand equation implies some degree of monetary policy effectiveness in influencing aggregate demand.JEL Classification: E5; E31; F41; O55Keywords: Inflation dynamics; Money market disequilibrium; Traded goods market disequilibrium; Cointegration; Error correction model; Uganda

Suggested Citation

  • Jacob Opolot & Anita Mpagi, 2017. "Inflation Dynamics in Uganda: The role of disequilibria in the money and traded goods markets," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 6(1), pages 1-2.
  • Handle: RePEc:spt:stecon:v:6:y:2017:i:1:f:6_1_2
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    References listed on IDEAS

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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