Impact of Inflation Targeting on Inflation in Low-income Economies: Evidence from Uganda
- Kiberu Brian
- Nyang’oro Owen
- Nyandemo Misati Samuel
- ( paper pages. 155 - 196 )
Abstract
This study examines the effectiveness of the inflation targeting (IT) framework in reducing inflation, inflation volatility, inflation persistence, and inflation bias in a low-income economy, focusing on Uganda, which adopted IT in 2011. Using quarterly data from 2001Q1 to 2025Q1, the study employs a New Keynesian dynamic stochastic general equilibrium model that incorporates labour market segmentation, fiscal-monetary interactions, informality, and dollarization to estimate the model for pre-IT and post-IT periods. The findings show that IT significantly reduced inflation, cumulative inflation deviations, and inflation volatility, although inflation persistence remained elevated for some shocks. The framework also reduced the inflation bias gap and enhanced the central bank’s response to inflation deviations. However, fiscal dominance continues to limit the full effectiveness of IT, with fiscal shocks becoming a prominent driver of inflation volatility after the framework's adoption.
Citation
Kiberu Brian, Nyang’oro Owen, Nyandemo Misati Samuel.
2026.
"Impact of Inflation Targeting on Inflation in Low-income Economies: Evidence from Uganda"
The Nigerian Journal of Economic and Social Studies,
68 (2): 155 - 196.
