Analysis of exchange rate volatility and covid-19 infection cases in Uganda
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The study examined the exchange rate volatility in Uganda due to critical roles the exchange rate plays in financial markets and international trade. In 1993, Uganda moved away from fixed exchange rate regimes towards more flexible ones to expedite the efficient absorption of external shocks to the domestic economy. However, the current regime is flawed with exchange rate volatility due to the imbalances in demand and supply for foreign currency caused by economic shocks and crises like COVID-19. On 18th March 2020, Uganda started implementing numerous policy measures to restrain the spread of COVID-19. However, because of the profound uncertainty due to the threat of the COVID‐19 pandemic, this study seeks to re-examine the impact of COVID‐19 on exchange rate volatility in Uganda using secondary data that includes the first and second wave periods of COVID-19 infections in Uganda until 31st December 2021 when the country fully opened its economy. Using the Generalized Autoregressive Conditional Heteroscedasticity, GARCH Model (GARCH (1,1), GARCH (1,2) TGARCH, and E GARCH, with GARCH (1, 1) model as the main model, the study finds a negative effect of increasing number of COVID-19 cases over the estimation period on exchange rate volatility in Uganda. The results can be explained by the prudent macroeconomic policies adopted by the Bank of Uganda for economic stability. Therefore, the country should still implement the same policy measures to reduce economic uncertainty and increase investor confidence and economic stability in times of uncertainty like the COVID-19 pandemic.