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An analysis of money demand stability in Rwanda.January 2005 (has links)
A stable money demand function and exogeneity of prices is at the core of planning and implementing a monetary policy of monetary targets. This thesis examines both the stability of M2 money demand and price exogeneity in Rwanda for the years 1980 to 2000. We estimate and test the elasticities of the determinants of Rwandan money demand function. We include in this demand function those variables which economic theory indicates must be part of any empirical investigation of money demand. All coefficients had the signs as required by economic theory. We estimate the money demand function for Rwanda using cointegration analysis and an error correction mechanism. The results show real income, prices and M2 to be cointegrated. We employ three tests to show that the estimated demand function for Rwanda is stable. We then test the second requirement for coherence in monetary aggregate targeting that money determines prices. The results show that prices are exogenous to money. But before we can definitely conclude that an inflation targeting regime is feasible from monetary policy perspective, we point out that future research on this important topic must
account for exchange rate movements, measure permanent income and specify interest rate changes correctly. / Thesis (M.A.)-University of KwaZulu-Natal, Pietermaritzburg, 2005.
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Effectiveness of monetary policy and money demand stability in Rwanda : a cointegration analysis.Adelit, Nsabimana. January 2010 (has links)
In 2007, the government of Rwanda launched a medium-term programme of four years, as stated in its
Economic Development and Poverty Reduction Strategy (EDPRS). A part of this programme is a
prudent monetary policy which is one of the responsibilities of the National Bank of Rwanda (NBR),
especially via its role of controlling liquidity in the national economy for ensuring macroeconomic
stability. The National Bank of Rwanda adjusts base money to ensure that the level of the monetary
aggregate M2 is consistent with price stability. To effectively implement this monetary policy, two
conditions are necessarily required: (i) a stable demand function for money; (ii) a stable long-run
relationship between the money stock and the price level. Using a cointegration analysis we investigated
the effectiveness of this policy through examining whether these two conditions are fulfilled for the years
1996:Q1 to 2008:Q3. This study confirmed the stability of the money demand function and found that the
money stock in the Rwandan economy and prices trend together in the long-run. Thus, targeting the
monetary aggregate M2 is a good indicator of the price level. Moreover, we found that at a five point six
per cent (5.6%) significance level, the Rwandan money market needs 3.5 quarters to eliminate a half
disequilibrium discrepancy in the money demand model. At a six point five per cent (6.5%) significance
level, the Rwandan money market needs 4.5 quarters to eliminate a half disequilibrium discrepancy in the
money supply model. Monetary policy implemented by the National Bank of Rwanda remains effective
as it is still possible to achieve the overall objective of price stability through targeting the monetary
aggregate M2. / Thesis (M.Comm.)-University of KwaZulu-Natal, Pietermaritzburg, 2010.
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