Search

The COVID-19 crisis has not only manifested as a tragic public health crisis but also as an unprecedented economic disruption characterized by economic deterioration, the sharp increase in market volatility and the blinding uncertainty about the impact of the pandemic, especially in the context of developing countries. It is therefore not surprising that central banks seeking to maintain macroeconomic and financial stability, which are critical for sustained economic development, have maintained the practice of central bank intervention, especially in developing countries. This paper empirically examines the effect of central bank foreign exchange interventions on the level and volatility of the Uganda shilling / US dollar exchange rate (UGX/USD). Utilizing daily data spanning the period December 30, 2016, to 1 December 2021, we estimate a foreign exchange intervention model within a GARCH theoretical framework. Empirical results indicate that foreign exchange interventions have had mixed impact on the volatility of the exchange rate. In addition, despite generating significant uncertainty, the COVID 19 pandemic adverse shock results in a 0.03 percent appreciation due to Uganda's policy response to the COVID-19 pandemic. [ABSTRACT FROM AUTHOR]

Models of crisis prediction continue to gain traction with the increased frequency of global crisis such as the ongoing COVID-19 pandemic. Moreover, the connectedness of financial markets appears to be of central importance in determining how shocks spill through asset market linkages. The study thus applies the time-frequency connectedness measures of Diebold & Yilmaz (2012) and Baruník & Křehlík (2018) to examine return and volatility connectedness dynamics in East African Community (EAC) member states. The study found a strong interdependence among the considered EAC markets as indicated by the high values of total return and volatility spillover indices. This high degree of interdependence is reflected in both static time and frequency domain return and volatility connectedness, especially at the longer term frequency bands, an indication that return and volatility shocks are persistent. This result lends further support to existing evidence on the suitability of the EAC regional economic integration, including the possible eventual establishment of a monetary union. In addition, the dynamic spillover analysis indicates that connectedness among these EAC markets is highly time-varying and appears to be amplified during global crisis events such as the European debt crisis, Kenyan elections, commodity price shocks and the COVID-19 pandemic. However, the results suggest that relative to periods of domestic turbulence, financial market connectedness in the EAC is more likely to get amplified during periods of external global shocks. The study also contributes to emergent literature on connectedness among financial markets during the COVID-19 pandemic. Importantly, the study finds that the COVID-19 pandemic had a significant effect on all the considered EAC markets although the magnitude and direction of impact varies across markets and countries. In addition, the study finds that Brent Crude oil prices are a significant source of return and volatility spillovers to EAC markets especially during crisis periods. [ABSTRACT FROM AUTHOR]

This article empirically investigates the effect of central bank's foreign exchange interventions on the level and volatility of the Uganda shilling/US dollar exchange rate (UGX/USD) under an inflation-targeting regime. Utilizing daily data spanning the period 1 September 2005, to 31 December 2015, we estimate a foreign exchange intervention model within a GARCH theoretic framework. Empirical results indicate that foreign exchange interventions have had mixed impact on the volatility of the exchange rate. We find that inflation targeting is capable of curbing temporary exchange rate shocks. Empirical results indicate that while order flow is capable of reducing exchange rate volatility, an increase in the operating target rate, the 7-day interbank rate tends to exacerbate exchange rate volatility. Our empirical results are robust to alternative model specifications. We argue that inflation targeting is an effective monetary policy tool for curbing exchange rate volatility. [ABSTRACT FROM AUTHOR]

The global financial crisis has disrupted trade and capital flows in most developing economies, resulting in an increased volatility of exchange rates. We develop an autoregressive distributed lag model to investigate the effect of exchange rate volatility on economic growth in Uganda. Using data spanning the period 1960–2011, we find that exchange rate volatility positively affects economic growth in Uganda in both the short run and the long run. However, in the short run, political instability negatively moderates the exchange rate volatility–economic growth nexus. These results are robust to alternative specifications of the economic growth model. [ABSTRACT FROM AUTHOR]

This study investigates the impact of commodity price volatility spillovers on financial sector stability. Specifically, the study investigates the spillover effects between oil and food price volatility and the volatility of a key macroeconomic indicator of importance to financial stability: the nominal Uganda shilling per United States dollar (UGX/USD) exchange rate. Volatility spillover is examined using the Generalized Vector Autoregressive (GVAR) approach and Multivariate Generalized Autoregressive Conditional Heteroskedasticity (MGARCH) techniques, namely the dynamic conditional correlation (DCC), constant conditional correlation (CCC), and varying conditional correlation (VCC) models. Overall, the results of both the GVAR and MGARCH techniques indicate low levels of volatility spillover and market interconnectedness except during crisis periods, at which point cross-market volatility spillovers and market interconnectedness sharply and markedly increased. Specifically, the results of the MGARCH analysis show that the DCC model produces the best results. The obtained results point to an amplification of dynamic conditional correlations during and after the global financial crisis (GFC), suggesting an increase in volatility spillovers and interdependence between these markets following the global financial crisis. This is also confirmed by the results of the total spillover index based on the GVAR analysis, which shows low but time-varying volatility spillover that intensified during periods of high uncertainty and market crises, particularly during the global financial crisis and sovereign debt crisis periods. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of inflation volatility on private sector credit growth. The results indicate that private sector credit growth is positively linked to the one period lagged inflation volatility. Given that past monetary policy actions continue to affect the targeted variables due to the substantial lags in the transmission mechanism, the positive response of private sector credit growth to past inflation volatility suggests a credible monetary policy regime in Uganda, which has led to a reduction in the level of macroeconomic uncertainty and the restoration of favorable economic conditions and prospects, thus increasing the demand for credit. Further, the study finds that the lagged private sector credit growth, nominal exchange rate, and inflation have a statistically significant effect on private sector credit growth while financial innovation, interest rates, and GDP growth appear not to be important determinants of private sector credit growth. The robustness of our findings is confirmed by sensitivity checks. [ABSTRACT FROM AUTHOR]