COINTEGRATION WITH STRUCTURAL BREAKS MONEY DEMAND, INCOME, INTEREST RATES AND EXCHANGE RATE MODELS: IMPLICATIONS FOR EFFECTIVENESS OF MONETARY POLICY IN UGANDA

Muwanga Sebunya Gertrude ()
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Muwanga Sebunya Gertrude: Makerere University

Journal of Smart Economic Growth, 2024, vol. 9, issue 3, 19-65

Abstract: The study investigated the dynamic relationships between money demand, income, prices, real effective exchange rates, and the savings, lending, discount and deposit rates in Uganda using a modified ARDL model catering for cointegration and structural breaks. It was established that: cointegration with structural breaks existed in all cases; monetary policy is not effectively transmitted through lending rates but is effectively transmitted through the savings, deposit and discount rates in the short-run as well as the saving and deposit rate in the long-run; the exchange rate transmission channel is effective both in the short-run and in the long-run; after accounting for structural breaks, the equations for all the variables are stable except that for deposit rate which is partially stable; money demand has an inelastic positive effect on income in the long-run only, has an inelastic positive effect in the short-run but an elastic positive effect in the long-run on price; increasing the saving rate is a more effective means of increasing income in Uganda; and that the discount rate has a negative inelastic effect on money demand and income in the long-run. It is recommended that: continuous studies to determine the most effective monetary policy transmission channel(s) be conducted regularly by monetary authorities as a rule in all countries; and efforts to address the shortcomings devised on a continuous basis.

Keywords: Money demand; income; ARDL modeling; cointegration; parameter stability; interest rates (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:seg:012016:v:9:y:2024:i:3:p:19-65

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