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Fiscal Deficits Financing: Implications for Monetary Policy Formulation in Uganda

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  • Thomas Bwire
  • Dorothy Nampewo

Abstract

The relationship among budget deficit, money creation and inflation in Uganda is analyzed using a triangulation of Vector Error Correction model (VECM) and pair-wise Engel-Granger non- causality test techniques over the period 1999Q4 - 2012Q3. Results suggest that fiscal deficits do not seem to necessarily trigger inflation in the short-run, but in the long-run. Also, unidirectional causality running from inflation to the fiscal deficit, from money supply to the fiscal deficit, and a feedback causal effect between money supply and inflation in the short-run are found. Thus, in the short-term, contractionary monetary policy to reduce inflation in Uganda need not focus on budget deficit reduction, but rather on other macroeconomic determinants of inflation, and inflation should be contained to mitigate its effect on the budget deficit.

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  • Thomas Bwire & Dorothy Nampewo, 2014. "Fiscal Deficits Financing: Implications for Monetary Policy Formulation in Uganda," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(2), pages 1-9.
    • Handle: RePEc:spt:apfiba:v:4:y:2014:i:2:f:4_2_9
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    Cited by:

    1. Kurayish Ssebulime & Bbaale Edward, 2019. "Budget deficit and inflation nexus in Uganda 1980–2016: a cointegration and error correction modeling approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-14, December.
    2. Joel Hinaunye Eita & Victoria Manuel & Erwin Naimhwaka & Florette Nakusera, 2021. "The Impact of Fiscal Deficit on Inflation in Namibia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 141-164.

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