In particular, cointegration analysis is used to establish the existence of a long-run relationship and the short- run dynamics are modeled via the error correction model. This paper uses contemporary empirical methods to model the demand for money. A stable money demand function ensures that the impact of monetary policy is predictable and that monetary policy actions are consistent with the desired objectives of price stability and long-run growth. The stability of such a relationship is assessed via a money demand function. The existence of a stable relationship between money and prices is generally regarded as a prerequisite for a monetary targeting framework. The implication of these findings is that macro-economic policy management in Uganda should be cognizant of these asymmetric effects of exchange rate, for effective planning, policy and implementation. Notably, economic uncertainty has insignificant effects in both models, except for its lags in the non-linear model. On the other hand, an exchange rate appreciation positively effects real money demand. ![]() On one hand, the non-linear ARDL model reveals that an exchange rate depreciation of the Uganda Shillings negatively affects real money demand in the short run. In the linear ARDL model, exchange rate has a positive effect in the long run but a negative result in the short run. Indeed, the study confirms the existence of exchange rate asymmetries on Uganda’s real money demand. The error correction terms of both models are negative and significant, with the one of the non-linear ARDL twice as much as that of the linear ARDL. This is also done by incorporating an economic uncertainty index, which is critical, especially in light of the novel global coronavirus pandemic, that has disrupted trade, movement and supply chains. The study uses both the linear ARDL and non-linear ARDL methodologies to accomplish its goal. ![]() ![]() Therefore, this is the first study to estimate exchange rate asymmetries in Uganda, for the period 2008QQ4. Indeed, exchange rate may have asymmetric effects on real money demand with exchange rate appreciation having different effects from exchange rate depreciation. Many money demand studies have been carried out on Uganda, however, these studies perceive and incorporate exchange rate as a linear determinant of real money demand.
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