Role of macroeconomic indicators in Uganda’s food price inflation: a VECM approach

Year 2023, , 111 - 127, 23.09.2023

Denis Waiswa

https://doi.org/10.48064/equinox.1143822

Cited By: 1

Abstract

This study was conducted to empirically examine the potential impact of macroeconomic indicators such as exchange rate, GDP, money supply, and food exports on Uganda’s food price inflation. The study employed the Johansen cointegration analysis and VEC model using quarterly data from 2000Q1 to 2022Q1. Outcomes of the analysis show that all variables are positive and statistically significant in influencing food prices in the long run except GDP which was negative and significant. However, in the short run, only GDP and the lag of food CPI were significant and influenced food prices positively. Based on the variance decomposition analysis and the very low R-squared value (0.2493), it can be concluded that food prices in Uganda are greatly influenced by factors other than macroeconomic indicators. These factors include changes in the weather pattern which lead to low food supplies, price transmission effects of rising food and fuel prices in the international markets, increased domestic food demand, and higher costs of imported production inputs. Therefore, while it is necessary to recognize the role of macroeconomic indicators in food price inflation, it is equally important to emphasize the role played by these other factors in determining food prices in Uganda for effective policy implementations.

Keywords

Macroeconomic indicators, food price inflation, unit root, VECM, Johansen cointegration

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