Free Access | June 2001

Determinants of price level dynamics in Uganda: Some stylized facts and empirical evidence

Authors/Editors: Charles A. Abuka ,  Augustine Wandera

Abstract:

This paper examines the dynamics of inflation in Uganda during 1989 - 1999. A period characterized by emphasis on macroeconomic stability. It analyses trend, seasonal and irregular unobserved components of inflation. The key finding was that the behavior of the inflation trend was largely underpinned by the macroeconomic policy management stance while indications are that the seasonal character was driven by the pattern of agricultural production and underlying climatic conditions. The irregular component on other hand was driven by external shocks like the "coffee boom" of 1994/95. The paper also finds that real output growth, exchange rate depreciation, money growth andforeign prices drove the domestic rate of inflation. Thepolicy message appears to be that continued improvement of monetary policy design and implementation is an important process in the management of price level dynamics.