Financial Liberalization, Money Demand, and Inflation in Uganda, Issues 2001-2118
International Monetary Fund, African Department, Sep 1, 2001 - Demand for money - 45 pages
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 that has taken place 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 demonstrate that both domestic and foreign factors are important determinants of inflation in Uganda.
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95 percent critical Appendix for definitions assumption Bank of Uganda broad money demand broad money velocity cointegrating vector Cointegration Analysis currency depreciation definitions and sources demand for money DEPO and TBILL DEPO TBILL LIBOR deposit rate Economic ecuip effective exchange rate empirical equation error-correction term financial deepening financial liberalization foreign interest rates Henstridge 1999 increase inflation inflationary International Financial Statistics International Monetary Fund Johansen Juselius lags Likelihood ratio tests long-run monetary policy money demand function money in Uganda money market natural logarithms negative null hypothesis Open Economy p+y-m percent critical value Portmanteau positive rate of inflation rates of return ratio RDEPO real broad money real interest rates real money balances rejected Residuals sample period seasonal dummies semi-PAS short-run dynamics significant sources of variables specification stability stationarity statistics for testing Table testing cointegration treasury bill treasury bill rate trend U.S. dollar unit root Weak exogeneity test