| dc.description.abstract | Before mid 1990s economic reforms, the National Bank of Rwanda had the task of
implementing monetary policy and supporting government policies including financing
government debt. Since the implementation of reforms, the financial sector has evolved
and the National Bank of Rwanda has adopted an indirect monetary policy. Whether the
National Bank of Rwanda can exogenously determine money supply and what are the
main determinants of money supply in Rwanda, are empirical questions. The main
objective of this study was to investigate the main determinants of money supply in
Rwanda. The specific objectives were to: determine the effects of domestic credit to
government on money supply; examine the effect of net foreign assets on money supply;
and test for endogeneity\exogeneity of money supply in Rwanda. Using monthly data
from January 1995 to September 2009, results from cointegration analysis revealed that
net domestic credits to banks, net foreign assets and domestic credit to government have
a significant positive influence on M2. Moreover, results from Granger causality test and
cointegration technique confirmed the Post Keynesians endogenous money hypothesis in
the short run while in the long run results were mixed between Monetarists’ exogenous
money hypothesis and Post Keynesians endogenous money hypothesis. Generally the
findings show that the banking sector is a key player in money supply process and a more
effective monitoring of financial institutions is needed to ensure an efficient money
supply management in Rwanda. | en |
