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Analysis of factors affecting inflation rate in Rwanda (1990-2009)

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par Richard UFITINEMA
Kigali Institute of Education - Bachelor of social sciences (hons), Economics with Education and QTS 2010
  

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KIGALI INSTITUTE OF EDUCATION

OCTOBER 2010

Analysis of factors affecting inflation rate in Rwanda (1990-2009)

BY: Richard UFITINEMA

REG. NUMBER: 3014/06

A research project submitted to the faculty of social sciences and business studies, Kigali Institute of education

In partial fulfillment of the requirements for the degree of bachelor of social sciences (hons), Economics with Education and QTS (Secondary).

Word count: 11,080

Supervisor: Mr. Alain Claude KARASIRA

ABSTRACT

This study was carried out in the context of global financial crisis characterized by a worst inflationary shock in Rwanda during recent years, it uses chronological data (1990-2009) to analyze the extent to which changes in Money Supply (M2); in Output (Real GDP); in Exchange rate and interest rate (Lending rate) influence the inflation. The data consist of the aggregated data set of 20 years compiled by NBR and NISR. Using a non- linear and multivariate model, this study estimates the dynamic influence of changes in M2, in real GDP, in exchange rate and interest rate on Inflation. It is found that an increase in M2 has a positive and significant influence on Inflation. Contrary to Real GDP have a negative and significant influence on Inflation. The study reveals that Money Supply (M2), in Output (Real GDP), in Exchange rate and interest rate (Lending rate) count for 97.2% variations in the general prices level (Inflation). Some recommendations are suggested as emanating from the findings of the study like to pursue a control of monetary and fiscal policy by government as well as substantial growth in agriculture sector and other economic activities that contributed in increase of output are also suggested to moderate the rate of inflation in Rwanda.

DECLARATION

I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, nor material which to a substantial extent has been accepted for award of any other degree or diploma at KIE or any other educational institution, except where due acknowledgement is made in the project. Any contribution made to the research by others, with whom I have worked at KIE or elsewhere is explicitly acknowledged in the Report.

I also declare that the intellectual content of this report is the product of my own work, except to the extent that assistance from others in the project's design and conceptions or in style, presentation and linguistic expression is acknowledged.

(Signed) ....................................... Date .....................................

APPROVAL

This is to certify that UFITINEMA Richard has carried out research entitled «Analysis of factors affecting inflation rate in Rwanda (1990-2009)» under my supervision and guidance.

Date: ......................................

Signed ...................................

Mr. Alain Claude KARASIRA

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