Introducing a Semi-Structural Macroeconomic Model for Rwanda
38 Pages Posted: 10 Sep 2014
Date Written: August 2014
We develop a simple semistructural model for the Rwandan economy to better understand the monetary policy transmission mechanism. A key feature of the model is the introduction of a modified uncovered interest parity condition to capture key structural features of Rwanda’s economy and policy framework, such as the limited degree of capital mobility. A filtration of the observed data through the model allows us to illustrate the contribution of various factors to inflation dynamics and its deviations from the inflation target. Our results, consistent with evidence for other countries in the region, suggest that food and oil prices as well as the exchange rate have accounted for the bulk of inflation dynamics in Rwanda.
Keywords: Monetary transmission mechanism, Rwanda, Inflation targeting, Monetary policy, Economic models, Monetary Transmission Mechanisms, Low Income Countries, inflation, real interest rate, aggregate demand, monetary fund, inflation dynamics, monetary transmission, monetary conditions, inflationary pressures, inflation equation, inflation target, central bank, monetary policy rule, inflation rate, monetary aggregates, monetary policy transmission mechanism, reserve requirements, national bank, coefficient on inflation, nominal interest rate, rational expectations, monetary policy regime, inflation rates, monetary policy decisions, inflation objective, monetary policy implementation, foreign exchang
JEL Classification: E47, E52, O23
Suggested Citation: Suggested Citation