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Private Sector Credit and Inflation Volatility

Economic Research Department, Bank of Uganda, Kampala 7120, Uganda
Economies 2018, 6(2), 28; https://doi.org/10.3390/economies6020028
Received: 8 December 2017 / Revised: 21 March 2018 / Accepted: 2 April 2018 / Published: 24 April 2018
(This article belongs to the Special Issue Economic Development in Africa)
This paper investigates the effect of inflation volatility on private sector credit growth. The results indicate that private sector credit growth is positively linked to the one period lagged inflation volatility. Given that past monetary policy actions continue to affect the targeted variables due to the substantial lags in the transmission mechanism, the positive response of private sector credit growth to past inflation volatility suggests a credible monetary policy regime in Uganda, which has led to a reduction in the level of macroeconomic uncertainty and the restoration of favorable economic conditions and prospects, thus increasing the demand for credit. Further, the study finds that the lagged private sector credit growth, nominal exchange rate, and inflation have a statistically significant effect on private sector credit growth while financial innovation, interest rates, and GDP growth appear not to be important determinants of private sector credit growth. The robustness of our findings is confirmed by sensitivity checks. View Full-Text
Keywords: private sector credit; inflation volatility; exchange rates private sector credit; inflation volatility; exchange rates
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Katusiime, L. Private Sector Credit and Inflation Volatility. Economies 2018, 6, 28.

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