Adverse Weather Shocks and Monetary Policy in Rwanda

Magnus Jonsson, Callixte Kamanzi, Placide Aime Kwizera and Jean Claude Niyonsenga

South African Journal of Economics, 2025, vol. 93, issue 4, 387-404

Abstract: This paper examines whether a central bank should stabilize CPI or core inflation (CPI excluding agriculture prices) following an adverse weather shock. We analyse this question in a two‐sector small open economy calibrated to reflect key characteristics of the Rwandan economy. We first empirically demonstrate that an adverse weather shock in Rwanda leads to higher agriculture prices and reduced agriculture output, consistent with the mechanisms embedded in the macroeconomic model. We then show that a central bank can minimize its losses—measured by a loss function based on CPI inflation—by stabilizing core inflation rather than headline CPI inflation in response to an adverse weather shock. Additionally, we show that CPI inflation is relatively insensitive to changes in labour mobility between the agriculture and nonagriculture sectors, changes in the elasticity of substitution between agriculture and nonagriculture goods, and changes in land maintenance costs.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/saje.70003

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:sajeco:v:93:y:2025:i:4:p:387-404

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0038-2280

Access Statistics for this article

South African Journal of Economics is currently edited by Philip A. Black

More articles in South African Journal of Economics from Economic Society of South Africa Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().