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Does the Fisher effect hold in Rwanda?

Author

Listed:
  • Martin Ruzima

    (Research Unit, Institute of Policy Analysis and Research – Rwanda (IPAR-Rwanda))

  • Micheal Kofi Boachie

    (University of the Witwatersrand)

  • Tatjana Põlajeva

    (NGO Eesti Euroinfo Ühing)

  • Abdul-Aziz Iddrisu

    (Kumasi Technical University)

Abstract

The Fisher hypothesis suggests a one-to-one link between nominal interest rate and expected inflation. The indication is that interest rate is independent of expected inflation. This paper empirically examines the Fisher effect in Rwanda using data from 2012m5 to 2020m2. We employ the Autoregressive Distributed Lag (ARDL) technique for data analysis. We find evidence of partial Fisher effect in Rwanda during the period. This indicates that changes in expected inflation are not fully absorbed in the nominal interest rate which suggests that bank deposits decline over time. Also, the findings suggest that monetary policy may not be efficient in such a circumstance and household’s savings rate may suffer a decrease. Besides, the short-run results show no Fisher effect between nominal interest rate and expected inflation. This calls for great attention while fixing interest rate as a tool for monetary policy.

Suggested Citation

  • Martin Ruzima & Micheal Kofi Boachie & Tatjana Põlajeva & Abdul-Aziz Iddrisu, 2023. "Does the Fisher effect hold in Rwanda?," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(3), pages 2657-2672, June.
    • Handle: RePEc:spr:qualqt:v:57:y:2023:i:3:d:10.1007_s11135-022-01479-6
    DOI: 10.1007/s11135-022-01479-6
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    More about this item

    Keywords

    Interest rate; Inflation; Fisher hypothesis; Rwanda;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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