Financial Liberalization, Money Demand, and Inflation in Uganda

IMF Working Papers, August 1, 2001

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Financial Liberalization, Money Demand, and Inflation in Uganda

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Bibliographic details

• Authors: Jean-Claude Nachega
• Published: August 1, 2001
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451854084.001

Summary

• Uses cointegration analysis to investigate the empirical relationship among money, prices, income, and a vector of interest rates in Uganda from 1982 to 1998.
• Despite substantial financial market liberalization in the early 1990s, quarterly time-series data confirm that a stable relationship prevailed among real broad money, income, and domestic and foreign interest rates.
• Empirical results indicate income homogeneity, a strong own-rate-of-return effect, a high degree of international capital mobility and asset substitutability, and demonstrate that both domestic and foreign factors are important determinants of inflation in Uganda.

Empirical findings

• Sample period: 1982 to 1998 (quarterly time-series).
• Stability: A stable relationship prevailed among real broad money, income, and domestic and foreign interest rates despite early-1990s liberalization.
• Key econometric conclusions:
  • Income homogeneity.
  • Strong own-rate-of-return effect.
  • High degree of international capital mobility.
  • High degree of asset substitutability.
• Inflation determinants: Both domestic and foreign factors are identified as important determinants of inflation in Uganda.

Subjects and keywords (as listed)

• Subjects: Demand for money, Financial services, Inflation, Interbank rates, Monetary base, Money, Prices, Velocity of money
• Keywords: broad money velocity, cointegration, Demand for money, demand function, depreciation rate, exchange rate, exchange rate depreciation, financial liberalization, inflation, inflation process, Interbank rates, Monetary base, money demand, Sub-Saharan Africa, treasury bill, Uganda, velocity equation, Velocity of money, WP

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• Financial Liberalization, Money Demand, and Inflation in Uganda - WP/01/118
  • Financial Liberalization, Money Demand, and Inflation in Uganda - WP/01/118 (Markdown version)
  • Financial Liberalization, Money Demand, and Inflation in Uganda - WP/01/118 (PDF)