Exchange rate and inflation in Uganda for the period 1990 - 2018.

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Kampala International University, College of Economics and Management
The effect of exchange rate on inflation of Uganda was studied from 1990 -2018 guided by the following specific objectives; to find out the relationship between nominal exchange rate and inflation rate in Uganda, to find out the relationship between real exchange rate and inflation rate in Uganda and to find out the causation between exchange rate and inflation in Uganda. The study employed a descriptive research design which involved determining the relationships between the variables of the study by using regression analysis. Time series data of inflation, real exchange rate and nominal exchange rate and exchange rate was used as far as this study was concerned. The findings of the study revealed that there is a positive relationship between exchange rate and inflation, the same was also for nominal exchange rate and inflation. This implies that as real exchange rate increases , inflation also increases .The multiple linear regression model revealed also revealed that only real exchange rate was significant. The study further established that there is a bi- directional granger causality between inflation and real exchange rate, inflation and nominal exchange rate and generally inflation and exchange rate. Hence exchange rate depends on inflation and inflation depends on exchange rate. The study, recommended that; the government should formulate favorable policies like regulating capital inflows and encouraging exports as this can reduce instability in real exchange rate since it causes inflation which has a negative implication on the economic growth of the country, the government should formulate favorable policies like promOting currency evaluation that can control instability in Nominal exchange rate since it greatly causes inflation. The government should also formulate policies that can control inflation like adjustment in taxation as it also causes exchange rate and currency evaluation should also be promoted by boosting exports to regulate exchange rate.
A research report submitted to the college of economics and management in partial fulfillment of requirements for the award of Bachelors’ Degree of Economics and Statistics of Kampala International University
Exchange rate, Inflation, Uganda