Usage of Economic Statistics in
Monetary Policy-making in Bank of
Uganda
By
BANK OF UGANDA
A Presentation at an International Meeting for Developing a Programme for the
Implementation of the 2008 System of National Accounts (SNA 2008) and Supporting
Statistics for ECOWAS and COMESA Countries: 9th – 13th December 2013
Statistics House – Kampala, UGANDA
Content
1. Overview
2. Economics statistics for monetary policy
formulation
3. National Accounts and Monetary policy
formulation
3.1. National accounts & monetary policy in ITL
3.2. Other Uses of National Accounts Statistics
3.3. Challenges in using National Accounts Data
3.4. Recommendation to Improve NA data
4. Conclusion
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1. Overview
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Statistical information is a vital input in decision making by all economic agents:
government, central bank, private sector market participants and households.
The mission of the Bank of Uganda is to ensure price stability and a sound financial
system.
One of the core mandate of the bank of Uganda is the conduct of monetary policy to
ensure price stability.
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Monetary policy-making is founded on a host of theoretical assumptions and models,
which needs to be verified using concrete statistical data.
The Bank of Uganda requires lost of statistical information on the economy from which
to base monetary policy decisions. The information requirement covers the activities
and behaviours of all economic agents within the economy, in the form of:
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For price stability the key indicator is inflation, measured by consumer prices index.
The bank currently uses the inflation targeting lite policy framework
Bank and non-bank financial information
External sector developments (i.e. BOP statistics)
Fiscal sector statistics
The real economy (i.e. GDP, perceptions of real sector).
Time series quantitative information is of unquestionable importance in in the
exploration of the linkages economic activities and construction of forecast.
The financial and external sector statistics are generated by the banks actvities and
UBOS provide all other statistics not compiled by the bank.
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2. Economics statistics for monetary policy
formulation
• Under inflation targeting lite framework since July 2011 the following
statistical information is required:
• Monetary statistics/survey: provides information on deposits, loans and
interest rates of supervised financial institutions as well as central bank
balance sheet.
• The liberalization of the current and financial account has necessitated the
increase use of the BOP statistics to in order to analyse external influences on
domestic monetary policy developments.
• Financial markets statistics are especially in establishing the transmission of
monetary policy into particular segment of the financial market, analysis of
inflation expectation, etc. The required information are:
• Exchange rate statistics
• Foreign currency interest rates developments
• Portfolio investments and Financial derivatives
• Information on inflation and factors contributing to inflation as well as
expectation of the real economy
• Headline, core (underlying) and inflation expectations
• Business confidence index (perception)
• Consumer expectation
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2. Economics statistics for monetary policy
formulation
• National accounts statistics
• GDP and its growth rates
• Estimates of output-gap
• Fiscal statistics: role of fiscal development in influencing
demand in the economy:
• Government expenditure
• Government revenue
• Public debt information
• Macroeconomic statistics for structural modelling to
improve understanding of the monetary policy transmission
mechanism and the reaction function derived from interest
rate changes in financing and investment behaviours.
• Monetary transmission mechanisms
• Inflation forecast for the short and medium term
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3. Usage of National Accounts in Monetary
policy formulation
• The national accounts bring together into one overall framework
the different aspects of the economy. They are therefore vital for
policy makers, analysts and researchers to examine the
performance of the economy and make comparisons with other
economies (international standards, SNA 2008).
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• national accounts aggregates and sector accounts.
• the rest of the world economy statistics.
Key national accounts indicators that play a central role in policy
decision are:
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gross domestic product (GDP) and growth rates,
income per capita
Fixed capital formation and sectors
public deficit as a percentage of GDP,
• The national account provides useful data on activities of nonfinancial corporations and households and their contribution to
total output.
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3. Usage of National Accounts in Monetary
policy formulation
• GDP growth rates from that national account is very
useful in the underlying assumption for forecasting
out-put gap and other macroeconomic aggregates
required for monetary policy.
• The national accounts is useful in monetary policy
formulation particularly in making projections of the
activities of non-financial corporation and households
to establish the transactions and sectoral balance sheet
consistent with GDP growth and inflation.
• The national accounts provide various balance sheet
indicators/ leverage ratios and estimates of debt
service which are useful for financial stability review.
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3.1 National accounts & monetary policy in ITL
• In ITL monetary policy framework, the policy
stance is influenced by the outlook for inflation;
mindful of economic growth, & exchange rate
stability.
• Understanding the current state as well as
outlook of the economy necessitates models and
forecasts.
• Managing the economic pressures on an
economy at any point in time is aided by
estimation of the gaps from the long term trends
of inflation, growth, exchange rates, interest
rates, among others.
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3.1 National accounts & monetary policy in ITL
• National accounts provide information that helps to
evaluate the demand pressures exerting on the
capacity of an economy i.e. the sources of price
pressures in the models and forecasts of the economy.
• Yet, while national accounts are available on quarterly
and annual basis, monetary policy decisions are
monthly. Moreover, the data come with a three-month
lag; forcing analysts to fill in the gaps using proxies.
Forecasting, an inexact art, is made difficult without
timely & reliable data.
• Moral: national accounts are critical to policy decision
making not least because they provide the best
information about demand and therefore inflationary
pressures on an economy.
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3.1 National accounts & monetary policy in ITL
• ITL comes with unprecedented central bank openness
especially the communication of the future trajectory of
the economy on which the policy stance is based.
• Yet, unreliable or absent national accounts data at high
frequency means that often central bank forecasts will have
errors. Such forecast errors may also result from revisions
of the published data.
• Forecast errors lead to policy errors, which are costly & risk
undermining the credibility of the Bank. BUT, they are
inevitable. Indeed, the great physicist Niels Bohr, famously
remarked “prediction is difficult, especially about the
future”.
• Accordingly, the improvements brought by 2008 SNA will
reduce the fog with which we central bankers are cursed
strain through in order to project inflation & advise on the
policy stance.
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3.2. Other Uses of National Accounts
Statistics
• National accounts provides useful information for
financial stability review, in particular for
identification of risks and vulnerabilities to the
various sectors of the economy
• Core national accounts figures are often used to
develop and monitor macro-economic policies
• detailed national accounts data can also be used to develop
sectoral or industrial policies, particularly through analysis of
input-output tables
• National accounts are used in a wide range of
areas, including: economic research, policy analysis,
macro-economic forecasting and fiscal surveillance.
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3.3. Challenges in using National Accounts
Data
• Quarterly GDP produced with a lag of three
months while monetary policy requires more
frequent (monthly) and timely data to guide
policy decisions.
• Short quarterly GDP series for macroeconomic
modelling.
• Disaggregation and coverage of national
accounts data
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3.4. Suggestion to Enhance Utility of
National accounts data in policy formulation
• Ensure timely availability of seasonally adjusted
quarterly data, covering: income, savings, consumption
capital formation and wealth by institutional sectors
without compromising quality;
• Integration of non-financial assets in to the balance
sheet of non-financial corporation and households
• Increase coverage of data set to improve estimates
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4. Conclusion
• Statistics provides the foundation for macroeconomic
analysis and policy making, the availability of timely
time-series data is a perquisite for an effective
formulation, assessment and communication of the
monetary policy decisions and forecast
• The national accounts provides information on the
activities of agents within the economy, which is vital in
guiding monetary policy formulation and forecasting
the aggregates.
• ITL require more timely and accurate data for monetary policy
• To ensure high quality and utility, the production of
statistics should adhere to the principal of impartiality,
reliability, relevance, cost effectiveness, statistical
confidentiality and transparency.
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Thank you
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