Impact de la masse monétaire,du PIB et du taux de change sur le niveau général des prix au Rwanda.

SUMMARY OF CHAPTER FOUR

In this chapter, we identified the evolution of currency in circulation, GDP, the exchange rate and the evolution of general level of prices measured by the consumer price index (CPI).

It is in this chapter that the causes and consequences of inflation were described. The literature from Rwanda development indicators, NBR annual reports and other source documents, prove that in Rwanda the causes of inflation are the following:

· Excess demand compared to the supply of goods and services;

· Monetary growth rate which is over the GDP growth rate;

· Increase in price of production cost, especially the cost of salary and raw materials used in the production process;

Among consequences, there are:

· Purchasing power of the population that have small and fixed income decreas

· Depreciation of Rwandan franc compared to foreign currencies like USD;

· The low savings and the increase of expenses.

To verify empirically our research assumption, the econometric tests were used and the results obtained proved that the currency in circulation and exchange rate explain significantly the general level of prices in Rwanda.

According to the results of long run regression model, the coefficient of determination (R²) and the Fisher test, our model is good. The partial coefficient of the currency in circulation (M2) shows that when the currency in circulation increases by 1%, the general level of prices increases by 0,289 billions Rwf while other factors hold constant. When the GDP increases by a unit, the general level of prices increases by 0,106 billions Rwf in the long run and 0,286 billions in the short run, ceteris peribus.

Also, when the exchange rate increases by 1%, the level of prices increases by 0,21 billions Rwf in the long run and 0,115 billions Rwf, in the short run while other factors hold constant. Finally, the autonomous coefficient of 2,318 means that if the factors « M2t, PIBt and TCHt » are assumed to be equal to zero, the IPCt arithmetic mean would be 2,318 billions Rwf.

Observing the results of the long run model, we notice that the parameters a₁ and a₃ are significantly different from zero while the parameter a₂ of GDP is insignificant.

Thus, taking into consideration the obtained results, we could say that the GDP does not explain the general level of prices in Rwanda. Nevertheless, the results obtained for a₁ and a₃ prove that the currency in circulation and the exchange rate explain significantly the general level of prices in Rwanda.