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Exchange Rate Pass-Through to Domestic Prices in Uganda: Evidence from a Structural Vector Auto-Regression (SVAR)

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  • Thomas Bwire
  • Francis L. Anguyo
  • Jacob Opolot

Abstract

This paper examines the degree of exchange rate pass through to inflation in Uganda with quarterly data over the period 1999Q3 to 2012Q2 using a triangulation of well specified Vector Error Correction (VEC) and Structural Vector Auto-Regression (SVAR) models. The findings show strong and significant association between the exchange rate movements and inflation in Uganda, and that the pass-through to domestic inflation, although incomplete, is modest and persistent with a dynamic exchange rate pass-through elasticity of 0.48. This suggests that exchange rate movements remain a potentially important source of inflation in Uganda. Using variance decomposition, it is found that exchange rate shocks have a modest contribution to inflation variance, although inflation is mainly driven by own shocks especially at shorter horizons. The policy implication arising from these findings is that the monetary authority must be vigilant at exchange rate movements and focus on exchange rate interventions which stem inflation pressure from the external sector.

Suggested Citation

  • Thomas Bwire & Francis L. Anguyo & Jacob Opolot, 2013. "Exchange Rate Pass-Through to Domestic Prices in Uganda: Evidence from a Structural Vector Auto-Regression (SVAR)," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 2(4), pages 1-3.
    • Handle: RePEc:spt:stecon:v:2:y:2013:i:4:f:2_4_3
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    Cited by:

    1. Mahmoud Hamid Arabi Naeem & Khalafalla Ahmed Mohamed Arabi & Howida Adam El-Maeia, 2023. "Impact of Monetary Policy and its Transmission Mechanism in Sudan," Technium Social Sciences Journal, Technium Science, vol. 41(1), pages 97-129, March.
    2. Sawuya Nakijoba, 2018. "Determinants of Nominal Effective Exchange Rate in Uganda (2000-2017): A Vecm Approach," Applied Economics and Finance, Redfame publishing, vol. 5(5), pages 45-58, September.
    3. Sheefeni, Johannes P.S., 2020. "Money Channel of Monetary Policy Transmission in Namibia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(1), pages 131-150.
    4. Coşkun Akdeniz & Abdurrahman Nazif Çatık & Esra Ballı, 2022. "Inflationary effects of oil price and exchange rate shocks in South Africa: Evidence from time‐varying pass‐through coefficients," South African Journal of Economics, Economic Society of South Africa, vol. 90(3), pages 301-328, September.
    5. Sarra Majoul Smaili & Mohamed safouane Ben aissa, 2018. "Exchange rate passthrough to domestic prices in some MENA countries," Economics Bulletin, AccessEcon, vol. 38(2), pages 1028-1037.

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