Interest Rate and Inflation in Uganda, (1998-2018)

ABSTRACT

 This study explored the relationship between interest rate and inflation in Uganda from the year 1998 to 2018. The origins of inflation have been amongst the most fiercely disputed subjects of economic analysis and political argument. However economists hold little or no monopoly over casual explanations. . Subsequently the origins of inflation are somewhat an enigma. However the argument will eventually boil down to two theories; Classical theory and Keynesian theory. Also interest rates. Interest rates have been around since the ancient civilizations. Interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender (brealey et al, 2001). The need for interest rates arose from societies that started to build cities and farm the land, instead of following the herds like their hunter-gatherer ancestors. The researcher used secondary data from the Central bank of Uganda and the data ranged from the year 1998 to 2018. Data analysis was made using SPSS and MS Excel. The analysis majored on three tests and these included; normality test, stationarity test and linearity test. The findings made showed that there is a negative relationship between interest rate and inflation, this means that when interest rate is high inflation is low. The researcher recommended the government to solve inflation by using measures like advocating for price controls, wage freeze among others.

V

ABBREVIATIONS BOU Bank of Uganda GDP Growth Domestic PrOduct

RBD Real Bills Doctrines

IV Independent Variable

DV Dependent Variable

ANOVA Analysis of Variance

SPSS Statistical package for social scientists

TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION iii

ACKNOWLEDGEMENT iv

ABSTRACT V

ABBREVIATIONS vi

CHAPTER ONE 1

INTRODUCTION 1

1.1 Background of the study 1

L2 Research Problem 3

1.3 General objectives 4

1.3.1 Specific objectives of the study 4

1.4 Research questions 4

1.5 Scope of the study 4

1.5.1 Geographical scope 4

1.5.2 Content scope 5

1.5.3 Time scope 5

1.6 Significance of the study s

1.7 Definition of the key terms 6

CHAPTERTWO 7

LITERATURE REVIEW 7

2.1 Introduction 7

2.2 conceptu& reviews 7

2.3 Theoretic& Review 9

2.2.1 Keynesian View 9

2.2.2 Monetarist View 10

2.2.3 Rationall Expectations Theory 11

2.2.4 Austrian View 11

2.2.5 Reail Bills Doctrine 12

VII

2.2.6 Anti-Classical or Backing Theory .12

2.2.7 Marxist Theory 13

2.3 Empirical Review 13

2A Research Gaps 15

2.4.1 Uterature gap 15

2.4.2 Empirical gap 15

2.4.3 Theoretical gap 16

CHAPTER THREE 17

RESEARCH METHODOLOGY 17

3.1 Introduction 17

3.2 Research Design 17

3.3 Sampling Design 17

3.4 Data Collection 17

3.5 Data Analysis 18

CHAPTER FOUR 19

RESULTS AND DISCUSSIONS OF FINDINGS 19

4.0 Introduction 19

4.1 Data source 19

4.2 Testing of Normality about the variables in the study 20

4.2.1 Testing of Normality about Inflation rate using Shapiro Wilkson’s test 20

4.2.2 Testing of Normality about interest rate using autocorrelations 22

4.3 Testing for Stationarity about the variables in the study 22

4.3.1 Testing for Stationarity about inflation rate using autocorrelations 23

4.3.2 Testing of stationarity about interest rate using autocorrelations and partial autocorrelations 24

4.4 Testing of Linearity about variables 25

4,5 The distribution of inflation rate in Uganda from 1998 to 2019 using a bar graph 26

4.6 Distribution of the relationship between interest rates and inflation rates in Uganda from the year 1998 to 2018 27

CHAPTER FIVE 28

VI I I

SUMMARY DISCUSSIONS, CONCLUSIONS AND FINDINGS 28

5~1 Introduction 28

5.2 Summary of findings and concIusions 28

5.3 Recommendations 29

5.3.1 Recommendation for further research 30

REFERENCES 31