Financial Liberalization, Money Demand, and Inflation in Uganda

Abstract:     
This paper 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 the 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. The empirical results indicate income homogeneity, a strong own-rate-of-return effect, a high degree of international capital mobility, and asset substitutability, and they demonstrate that both domestic and foreign factors are important determinants of inflation in Uganda.

Number of Pages in PDF File: 45

Keywords: Uganda, money demand, inflation, financial liberalization, cointegration

JEL Classification: E41, E52, F41

working papers series