Back Matter

VI. References

  • Andrle, M. A., Andrew Berg, Rogelio Morales, Rafael Portillo and Jan Vleck. (2013). Forecasting and Monetary Policy Analysis in Low Income Countries (1): Food and Non-Food Inflation in Kenya. Working Paper, International Monetary Fund, Washington, D.C.

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  • Andrle, M. A., Andrew Berg, Enrico Berkes, Rogelio Morales, Rafael Portillo, David Vavra and Jan Vleck. (2013). Forecasting and Policy Analysis Systems in Low Income Countries (2): The Role of Money Targeting in Kenya. Working Paper, International Monetary Fund, Washington, D.C.

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  • Ball, Lawrence. (1994). What Determines the Sacrifice Ratio? In N. Gregory Mankiw (Ed). Monetary Policy (p. 155 - 193). Chicago: The University of Chicago Press.

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  • Benes, Jaromir, Jaromir Hurnik and David Vavra. (2008). Exchange Rate Management and Inflation Targeting: Modeling the Exchange Rate in Reduced-Form New Keynesian Models. Czech Journal of Economics and Finance, 58, No. 34.

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  • Benes, Jaromir, Andrew Berg, Rafael A. Portillo and David Vavra. (2013). Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework. Working Paper, International Monetary Fund, Washington D.C.

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  • Berg, Andrew, Philippe Karam, and Douglas Laxton. (2006), Practical Model-Based Monetary Policy Analysis—A How-To Guide. Working Paper, International Monetary Fund, Washington D.C.

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  • Berg, Andrew, Luisa Charry, Rafael Portillo and Jan Vleck. (2013). The Monetary Transmission Mechanism in the Tropics. Working Paper, International Monetary Fund, Washington D.C.

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  • International Monetary Fund. (2013a). Annual Report on Exchange Arrangements and Exchange Restrictions. Washington, D.C.

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  • Ostry, Jonathan D., Atish R. Ghosh and Marcos Chamon. (2012). “Two Targets, Two Instruments: Monetary and Exchange Rate Policies in Emerging Market Economies”. Staff Discussion Note, International Monetary Fund, Washington D.C.

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*

This working paper is part of a research project on macroeconomic policy in low-income countries supported by the U.K.’s Department for International Development (DFID). Masafumi Yabafara participated in earlier stages of the project. We would like to thank Andrew Berg, Paulo Drummond, Rafael Portillo and seminar participants at the IMF’s African Department for valuable comments. Fan Yang provided valuable research assistance. All errors remain ours.

3

See, for example, Berg et al (2013).

4

For example, in late 2008 and responding to a liquidity squeeze the NBR lowered reserve requirements and introduced new credit facilities for commercial banks. However, at the same time, the NBR increased the KRR to promote deposits.

5

For simplicity we use US variables to proxy for the rest of the world.

6

The nominal exchange rate is defined as units of domestic currency (Rwandan Franc) per US dollar. The real exchange rate is a bilateral rate vis a vis the US dollar.

7

This specification allows us to capture potential second-round effects of supply shocks on core inflation.

8

See Benes, Hurnik, and Vavra (2008) for alternative ways to model exchange rate dynamics in the context of managed exchange rate regimes.

9

Modifications to the central bank’s exchange rate policy can be captured either through changes in parameter η, changes in stT, or changes in the rate of crawl.

11

We use the overnight interbank rate as a proxy for the stance of monetary policy in Rwanda. An increase of the interbank rate is interpreted as a tightening of monetary policy whereas a decrease reflects a loosening of policy. A follow-up paper will introduce formally the role of monetary aggregates in the conduct of policy.

12

Monthly series are averaged to quarterly frequencies.

13

See Berg, Karam, Laxton (2006) and Andrle et al. (2013 a, b) for guidelines in calibrating this class of models in low income economies.

14

In all cases, these correspond to responses to a temporary 1 percent increase during one-quarter in the shock term. The results are presented in deviations from steady-state values.

15

In our case, the set of unobserved states includes the gap (deviations from trend) components. The filtering exercise covers the period from 2008 onwards.

16

The higher real depreciation after the aid shock was achieved through an upward adjustment in the rate of crawl by the central bank.

17

Particularly when considering that monetary policy shocks seem to be negatively correlated with exchange rate shocks.

Introducing a Semi-Structural Macroeconomic Model for Rwanda
Author: Ms. Luisa Charry, Pranav Gupta, and Mr. Vimal V Thakoor