Research Articles

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Browsing Research Articles by Author "Akena, Geoffrey Oyoo"

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    Inflation threshold and financial sector development in Uganda
    (International Journal of Business and Economic Sciences Applied Research, 2024-07) Akena, Geoffrey Oyoo; Mayanja, John Bbale; Amandu, Yassin Is’haq
    Purpose: This paper empirically analyzes the inflation threshold for better financial sector development (FSD) in Uganda using the yearly trend data spanning over the period 1980 to 2020. The basic idea of the study was to affirm whether the 5-percent bank of Uganda (BOU) inflations rates target is correct. Design/methodology/approach: The analysis incorporates the Autoregressive Distributing Lags (ARDL) model. This is due to the fact that the variables of the study were not all stationary at the same levels but archived strong stationarity after differencing once. To capture the inflation threshold estimation, the Ordinary Least Square model was run with lag value of the dependence variable. Findings: The research indicates that the critical inflation threshold is 6 percent. Below 6 percent inflation, there is a positive and decreasing impact but a statistically insignificant connection between inflation and FSD. Beyond 6 percent, the relationship becomes negative, and the intensity increases exponentially as the inflation rate increases. Specifically, the study estimates that at a 5% inflation rate, the FSD has the potential to grow by about 1.3 % and should the inflation rate increase from the optimal of 6% to 7%, it drops by the same magnitude. Research limitations/implications: Data Limitation. The time span of 1980-2020, is because of no data for some variables beyond the chosen time frame. Even if some data were available, some are inconsistence and varies within the available data base set. Originality/value: The study augment to the development of FSD in Uganda by furnishing the Monetary Authority with evidence that help fix the optimal inflation threshold in the country. Similarly, this research will contribute to the existing body of knowledge on how best to manage the inflation rate in the country.