6 research outputs found
Monetary policy in low income countries: the case of Uganda
This thesis addresses interrelated issues that influence the implementation of monetary policy in low income countries (LICs). These include the role of inflation persistence, financial frictions and the potential impact of regime-changes or large shocks. The analysis is applied to data for the Ugandan economy. Chapter 3 extends the quantile regression approach to investigate inflation persistence in LICs. The results suggest mean-reversion for the whole sample, however, there is evidence of asymmetric mean-reversion within specific quantiles. In addition, it is noted that the level of persistence increased after 2006 and during the inflation-targeting period. The study also suggests that a measure of core inflation that is derived from wavelet techniques appears to provide a useful measure of this variable. Chapter 4 considers the role of financial frictions in Uganda. It makes use of a dynamic stochastic general equilibrium (DSGE) model that incorporates several small open-economy features. The model parameters are estimated with the aid of Bayesian techniques using quarterly macroeconomic data. The results suggest that the central bank currently responds to changes in the interest rate spread and that it may be possible to derive a more favourable sacrifice ratio by making use of a slightly more aggressive response to macroeconomic developments. Chapter 5 employs a Markov-switching DSGE model to consider the possibility of regime-switching behaviour. Two variants of regime-switching models are considered: One that incorporates regime-switching features in the monetary policy rule (only) and another that incorporates regime-switching features in both the monetary policy rule and in the volatility of the shock processes. Most of the parameters are again estimated with the aid of Bayesian techniques. The results suggest that the model parameters do not remain constant over the two regimes and the transition probabilities appear to capture important economic events. In addition, the out-of-sample evaluation suggests that the regime-switching models may provide a more accurate description of the data generating processes
Monetary policy, financial frictions and structural changes in Uganda: a Markov-switching DSGE approach
This paper considers the use of regime-switching dynamic stochastic
general equilibrium models for monetary policy analysis
and forecasting purposes. The objective is to determine whether
or not the inclusion of these regime-switching features provide a
more accurate description of the economy in a particular low
income country. All of the models incorporate financial frictions
that are introduced through the activities of heterogeneous
agents in the household and several other features that are incorporated
in most small open-economy models. Two variants of
regime-switching models are considered: one includes switching
in the monetary policy rule (only) and the other employs switching
in both the monetary policy rule and the volatility of the
shocks. The models are applied to the quarterly macroeconomic
data for Uganda and most of the parameters are estimated with
the aid of Bayesian techniques. The results of the extensive inand
out-of-sample evaluation suggest that the model parameters
do not remain constant over the two regimes. In addition, the
transition probabilities suggest that there are three distinct periods
where the central bank response has been more aggressive.
These periods relate to a change in policy framework and significant
shocks that have affected the Ugandan economy. It is also
noted that the forecasting performance of the regime-switching
models are possibly superior to the model that excludes these
features over certain horizons
Monetary policy and financial frictions in a small open-economy model for Uganda
This paper considers the role of financial frictions and the conduct of monetary policy in Uganda. It makes use of a dynamic stochastic general equilibrium model, which incorporates small open-economy features and financial frictions that are introduced though the activities of heterogeneous agents in the household. Most of the parameters in the model are estimated with the aid of Bayesian techniques and quarterly macroeconomic data from 2000q1 to 2015q4. The results suggest that the central bank currently responds to changes in the interest rate spread, despite the fact that capital and financial markets are relatively inefficient in this low-income country. In addition, the analysis also suggests that to reduce macroeconomic volatility, the central bank should continue to respond to these financial sector frictions and that it may be possible to derive a more favourable sacrifice ratio by making use of a slightly more aggressive response to macroeconomic developments.http://link.springer.com/journal/1812020-07-10hj2019Economic
Inflation dynamics in Uganda : a quantile regression approach
This paper considers the measurement of inflation persistence in Uganda and how this has changed over time within different quantiles. The measures of inflation include headline inflation and two measures of core inflation. The results suggest that while a unit root is found in many of the upper quantiles of headline inflation, there is evidence of mean reversion within the lower quantiles, which implies that large positive deviations influence the permanent behaviour of inflation. In addition, we find higher levels of persistence after 2006 and during the inflation-targeting period, where potential structural changes may have arisen within the regression quantiles.https://www.tandfonline.com/toc/reme202021-04-17hj2020Economic