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Inflation Dynamics in Uganda: A Quantile Regression Approach

Author

Listed:
  • Francis Leni Anguyo

    (School of Economics, University of Cape Town, Rondebosch, South Africa and Research Department, Bank of Uganda, Kampala, Uganda)

  • Rangan Gupta

    (University of Pretoria, Pretoria, South Africa and IPAG Business School, Paris, France)

  • Kevin Kotzé

    (School of Economics, University of Cape Town, Rondebosch, South Africa)

Abstract
This paper considers the measurement of inflation persistence in Uganda and how this has changed over time. As the data does not follow a normal distribution, we make use of the quantile regression approach to investigate how various shocks may affect the rate of inflation within different quantiles. The measures of inflation include headline inflation, the central bank's measure of core inflation, and an alternative measure of core inflation. The results suggest that while a unit root is found in many of the upper quantiles of headline inflation, there is evidence of mean reversion within the lower quantiles. In addition, we find higher levels of persistence after 2006 and during the inflation-targeting period. When considering the degree of persistence in the central bank's measure of core inflation, the results suggest that there is a unit root in this measure during the inflation-targeting period. In addition, the alternative measure of core inflation, which is derived from a wavelets transformation, provides similar results. However, this measure is less volatile and more correlated with headline inflation. All the results suggest that large positive deviations from the mean would influence the permanent behaviour of inflation, while small negative deviations are relatively short-lived.

Suggested Citation

  • Francis Leni Anguyo & Rangan Gupta & Kevin Kotzé, 2017. "Inflation Dynamics in Uganda: A Quantile Regression Approach," Working Papers 201772, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201772
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    as
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    More about this item

    Keywords

    Inflation persistence; Quantile regression; Structural break; monetary policy;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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