ABSTRACT
The global financial crisis has disrupted trade and capital flows in most developing economies, resulting in an increased volatility of exchange rates. We develop an autoregressive distributed lag model to investigate the effect of exchange rate volatility on economic growth in Uganda. Using data spanning the period 1960–2011, we find that exchange rate volatility positively affects economic growth in Uganda in both the short run and the long run. However, in the short run, political instability negatively moderates the exchange rate volatility–economic growth nexus. These results are robust to alternative specifications of the economic growth model.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 The results based on a measure of realized volatility (LVOL) where the annual volatility is obtained as the sum of log squared monthly returns are fairly similar and hence are not reported here. They are available from the corresponding author on request.