Monetary Policy in Rwanda: 1964―Present (Frontiers in African Business Research)

This book analyzes evolution of monetary policy in Rwanda since it was first implemented by the National Bank of Rwanda in 1964 when the bank was established. It contributes to the understanding of monetary policy which is formulation and implementation in different stages of development of a financial system that comprises the financial market (money market and capital market), financial intermediaries such as commercial banks, and the financial sector infrastructures such as payment systems and the credit reference bureau. The book breaks down applied empirical research on the assessment of key assumptions of a monetary targeting framework, namely the stability of money multiplier and money demand using econometrics of time series, through a number of case studies. Presenting a detailed empirical analysis of the monetary transmission mechanism, one of the most analyzed topics in central banks in advanced economies, this book is a valuable read for central bankers and other researchers of monetary policy, particularly in developing economies." Foreword 6 Preface 8 Contents 10 1 Financial System Development and Monetary Policy 12 1.1 Introduction 12 1.2 Financial System and Monetary Policy 15 1.2.1 Financial Intermediaries 15 1.2.2 Financial Markets 16 1.2.3 Financial Infrastructure 18 1.3 Financial System Development in Rwanda 20 1.3.1 Financial Sector 21 1.3.2 Financial Markets 28 1.3.3 Financial Market Infrastructure Development 35 References 40 2 Evolution of Monetary Policy Implementation in Rwanda 42 2.1 Introduction 42 2.2 Era of Direct Control (1964–1990) 44 2.2.1 Monetary Policy Instruments 44 2.2.2 Outcomes of NBR Monetary Policy Between 1964 and 1994 48 2.3 Period of Market-Based Monetary Policy Instruments 49 2.3.1 Monetary Policy Instruments 51 2.3.2 Outcomes of NBR Monetary Policy After 1994 61 References 64 3 Development of the Monetary Policy Framework in Rwanda 66 3.1 Monetary Targeting Framework in Rwanda 67 3.1.1 Base Money as Operating Target 71 3.1.2 Money Multiplier 72 3.1.3 Money Multiplier Model for Rwanda 73 3.1.4 Stability of Money Multiplier 76 3.1.5 The Money Demand 79 3.1.6 Estimation of Money Demand Function in Rwanda 82 3.1.7 Stability of Money Demand in Rwanda 85 3.2 Price-Based Monetary Policy Framework 87 References 95 4 Monetary Transmission Mechanism in Rwanda 97 4.1 Introduction 97 4.2 Determinants of Monetary Transmission Mechanism 98 4.3 Interest Rate Pass-Through 100 4.4 Exchange Rate Pass-Through 105 4.5 Monetary Transmission Mechanism Assessment: A Vector Autoregressive Framework 110 4.6 Exchange Rate Pass-Through 115 References 119 5 Monetary Policy Communication at the National Bank of Rwanda 121 5.1 Introduction 121 5.2 Monetary Communication in National Bank of Rwanda 126 5.2.1 NBR Communication Strategy 128 5.2.2 Monetary Communication Tools 128 5.3 Monitoring the Impact of Monetary Policy Communication 136 References 140 Appendix to Chapter 1 142 Appendix to Chapter 2 146 Appendix to Chapter 3 148 Appendix to Chapter 4 155 Appendix to Chapter 5 162