Monetary Policy Framework and Economic Growth in Uganda: Effectiveness of Inflation Targeting Framework

Abstract

In July 2011, bank of Uganda changed its Monetary Policy Framework from targeting monetary aggregates to inflation targeting lite framework. In spite of its ability to stabilize inflation, the impact of the IT regime on economic growth is rather nascent. Upon this backdrop, the study examined the impact of IT regime (in comparison with monetary aggregate regime) on economic growth in Uganda using quarterly data from 2005 quarter 1 to 2018 quarter 4. Empirical model was estimated using ARDL estimation technique and the results revealed that IT regime was associated with higher economic growth outcomes compared to monetary aggregate targeting. Based on the findings, the study recommends government through bank of Uganda to adopt fully-fledged monetary policy as this will further boost economic growth in the country.

Key words: Monetary Policy, Inflation targeting, Monetary Aggregates, and ARDL