Does the Fisher effect hold in Rwanda?

Martin Ruzima (), Micheal Kofi Boachie, Tatjana Põlajeva and Abdul-Aziz Iddrisu
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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

Quality & Quantity: International Journal of Methodology, 2023, vol. 57, issue 3, No 33, 2657-2672

Abstract: 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.

Keywords: Interest rate; Inflation; Fisher hypothesis; Rwanda (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11135-022-01479-6

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