The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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.