Exchange rate fluctuations and prices of consumer goods in Uganda 1995-2005
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Date
2006-11
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Publisher
Kampala International University, College of Economics and Management
Abstract
This study intended to explore the impact of exchange rate fluctuations on of consumer goods in Uganda for the period 1995-2005. Exchange rate fluctuations impact negatively the macro economic variables like employment, investment, inflation, consumer’s standards of living, traders and government popularity. This calls for immediate investigation to find out with empirical evidence how much such fluctuations affect these economic variables, specifically prices of consumer goods.
The study investigated on movements in exchange rates, the consumer price index, price of food crops, prices of imports and exports, Gross Domestic Product (GDP), money supply and rainfall.
A model was constructed and regressions were run. The Pearson’s correlation test was used to test the relationship between the variables. The Ordinary Least Square (OLS) estimation technique was applied to times series data for the period 1995-2005. Computer packages like EXCELL, SPSS and STATA were used in data processing.
The research tested the general hypothesis that there is no significant relationship between exchange rate movements and the above explanatory variables.
The findings indicate that using monthly data, Nominal Exchange Rate is positively related to the general price level, food crop prices and the price of imports, but negatively related with the price of exports and rainfall. Thus a one unit increase in the nominal exchange rate increases the general price level by 0.033, import price by 0.010 and reduces export prices by 0.069. Nominal Effective Exchange rate Increases food crop prices by 15.794. Results further indicate that a one percent increase in the price of import increase the general price level by 0.209. A one percent increase in the price of exports increase the general price level by 0.144 and a one percent increase in rainfall reduces the price level by 0.011.
The researcher recommends that in order to improve people’s welfare, increase trader’s profits and have relative price and exchange rate stability the government should implement policies to reduce fluctuations and maintain relative exchange r’ate stability, increase exports to increase foreign exchange in the country, carry out trade liberalization, privatization and exchange rate depreciation with a lot of care to avoid damaging the nationals. Maintaining a managed float exchange rate system other than a free float. Bank of Uganda should improve on data collection especially regarding foreign exchange.
Description
A thesis submitted to the School of Post Graduate Studies Kampala International University in partial fulfillment for the award of Masters of Arts in Economics
Keywords
Exchange rate, Consumer goods, Fluctuations, Uganda