
Contents
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1 Introduction 1 Introduction
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2 Motives for the Introduction, and Salient Features, of IT in Uganda 2 Motives for the Introduction, and Salient Features, of IT in Uganda
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3 The Separation of Fiscal and Monetary Policy and the Issue of Fiscal Dominance 3 The Separation of Fiscal and Monetary Policy and the Issue of Fiscal Dominance
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4 Formulating Monetary Policy 4 Formulating Monetary Policy
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5 Implementing Monetary Policy 5 Implementing Monetary Policy
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5.1 Challenges for the Implementation of Monetary Policy 5.1 Challenges for the Implementation of Monetary Policy
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6 Exchange Rate Policy and Monetary Policy 6 Exchange Rate Policy and Monetary Policy
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7 Communications 7 Communications
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8 How Effective has Monetary Policy Been in the IT Framework? 8 How Effective has Monetary Policy Been in the IT Framework?
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8.1 How Strong is the Interest Rate Transmission Mechanism? 8.1 How Strong is the Interest Rate Transmission Mechanism?
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8.2 Do Changes in Market Rates Affect Macroeconomic Variables? 8.2 Do Changes in Market Rates Affect Macroeconomic Variables?
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8.3 Inflation Outcomes under the IT Framework 8.3 Inflation Outcomes under the IT Framework
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9 Conclusions 9 Conclusions
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References References
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2 Inflation Targeting in Uganda: What Lessons Can We Learn from Five Years of Experience?
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Published:March 2018
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Abstract
The Bank of Uganda introduced an inflation targeting (IT) monetary policy framework in 2011, replacing a decades-old money targeting framework. This chapter reviews Uganda’s experience and concludes that an IT framework is feasible for Uganda, despite shallow financial markets, volatile exchange rates, supply price shocks which make inflation more volatile and difficult to forecast, and lack of data. Key prerequisites were the operational independence of the central bank and the primacy of the core inflation objective for monetary policy. The successful adoption of IT in Uganda depended on the adoption of a set of basic principles, including: the primacy of the inflation forecast in setting policy; the separation of monetary from fiscal operations; the adoption of a short-term interest rate as the sole operating target, rather than e.g. a mix of interest rates and monetary aggregates; and an emphasis on clear communications.
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