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EPRCseries71

FISCAL POLICY CONSISTENCY AND ITS IMPLICATIONS FOR MACROECONOMIC AGGREGATES: THE CASE OF UGANDA

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EPRCseries71.pdf
Basic Information
Creator / Author
HISALI, ERIA
Source / Publisher
Economic Policy Research Centre (EPRC)
Resource Type
Geographic & Audience Details
Classification & Domains
Subject
Economic Development
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Abstract

The relationship between growth in monetary aggregates and price changes continues to be a subject of considerable debate both in the academic and policy circles. Whereas the more conservative policy makers hold that growth in monetary aggregates bear proportionately on prices, liberals on the other hand suggest a fairly weak relationship and instead mainly attribute sustained price changes to other innovations (including structural weaknesses and poor productive capacity). This study employed vector autoregression techniques (and its variants) to examine both short term as well as long term interactions between selected macroeconomic aggregates with particular focus on the relationship between money growth and price changes. Results from both the reduced form vector autoregression specification and the contemporaneous structural vector autoregression show a weak causation from growth in monetary aggregates to price changes, but the link between changes in monetary aggregates and prices becomes stronger in the long run. The results also point to a strong relationship between price changes on the one hand and exchange rate depreciation, and past inflation outcomes on the other. The results imply a potential for increased revenue from monetisation, at least up to some feasible as well as the need to focus on other possible sources of price variations.
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Keywords

Fiscal Stance, Macroeconomic Aggregates, Structural Vector Autogression, Budget Accounting Approach
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