Abstract: This study investigated the impact of credit channel of monetary transmission mechanism in executing monetary policies in Rwanda, during the period 2007-2017. The study employed a VAR methodology using impulse response graphs and variance decomposition to test the relative impact of the different variables tested being repo rate, money supply (M3), consumer price index (CPI), gross domestic products (GDP) and savings and investment, the data set was quarterly collected from national bank of Rwanda. And finding out whether credit channel is more effective or ineffective. The empirical analysis found two captivating results. Firstly, all variables were stationary at level I (0) using Eviews version 8. Secondly, with exception of innovation (M3), there exists significant influence of credit channel of monetary transmission shock to GDP and CPI, despite of being weak and a strong significant influence on economic growth. The overall result reveals that R-squared is 0.83 and adjusted R-squared is 0.69 indicating that 69 percent of the variations in inflation could be explained by the combined effect of changes in all independent variables and the overall result reveals that R-squared is 0.67 and adjusted R-squared is 0.75 indicating that 75 percent of the variations in credit to private sector could be explained by the combined effect of changes in all independent variables.
Keywords: credit channels, monetary transmission, VAR.
Title: MODELING THE EFFECTS OF CREDIT CHANNEL OF MONETARY TRANSMISSION MECHANISM IN RWANDA
Author: Mugisha Robinson
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
Research Publish Journals
