Abstract
This paper focuses on the impact of monetary policy transmission mechanisms (selected channels of monetary transmission) on Rwanda’s nominal gross domestic product (NGDP). Using a documentary review and by applying an econometric analysis technique on a set of data collected from 1999 to March 2013, the paper finds a relationship between the two. The study shows that the growth in money supply and the nominal exchange rate greatly affect the Rwandan economy’s NGDP; various unknown factors also affect its NGDP. Growth in money supply has a huge impact on NGDP. The paper explores the effects of stochastic shocks of each of the endogenous variables using the error correction model (ECM). The study shows that a long-run relationship exists among the variables. Also, the core findings of the study show that the exchange rate and broad money are statistically significant monetary policy instruments that drive economic growth in Rwanda.
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