INFLATION TARGETING LITE REGIME IN UGANDA

Abstract: This paper analyses the impact of inflation targeting as a monetary policy framework on inflation volatility and inflation rates in Uganda, with a comparison with South Africa and Ghana (full-fledged inflation targeting economies) and Kenya that opted for a forward looking monetary framework. The results show that inflation targeting in Uganda has been efficient in reducing inflation volatility and inflation in Uganda. Empirical findings suggest that persistent supply shocks may hinder the effectiveness of inflation targeting as the case with Ghana. The results also showed that full-fledged inflation targeting economies with less supply shocks have less inflation volatility than economies with transitional regimes as seen from South Africa and Uganda. Secondly empirical findings in this study render a forward-looking monetary policy framework less effective in controlling inflation volatility compared to inflation targeting. Lastly the paper also shows that money growth targeting was inefficient in controlling inflation rates and inflation volatility and hence justifying its abandonment.