Quarterly Projection Model for the National Bank of Rwanda

IMF Working Papers, December 21, 2020

Source details

Authors: Jan Vlcek, Mikhail Pranovich
Publication date: December 21, 2020
Abstracted purpose: Documents the quarterly projection model (QPM) at the core of the Forecasting and Policy Analysis System (FPAS) used by the National Bank of Rwanda (BNR).
Key institutional change: National Bank of Rwanda (BNR) modernized monetary policy and transited to the price-based policy framework in January 2019.
Core role of FPAS: Mobilizes and organizes resources and sets processes for regular forecasting rounds to support forward-looking monetary policy.

Foundation: The QPM is an extension of the canonical structure in Berg et al (2006).
Extensions to reflect Rwanda-specific features:
- Interest-rate-based policy framework with a managed exchange rate.
- Effect of agricultural sector and harvests on prices.
- Role of fiscal policies and aid flows.
Functional role: Structural macroeconomic model for macroeconomic analysis and projections to support BNR staff policy recommendations to the monetary policy committee.

Subjects explicitly covered: Agricultural production, Central bank policy rate, Exchange rates, Financial services, Food prices, Foreign exchange, Inflation, Prices, Production, Real exchange rates.
Keywords included in the content listing:
- Agricultural production, Aid, central bank, Central bank policy rate, demand shock, depreciation rate, depreciation target, energy price inflation, Exchange rates, Fiscal Impulse, floating exchange rate, food inflation, food price inflation, Food prices, Forecasting and Policy Analysis, Global, headline inflation, Inflation, inflation deviation, Managed Exchange Rate, Monetary Policy, money market, nominal exchange rate depreciation, price gap, Quarterly Projection Model, real world oil price gap, Rwanda, transmission mechanism, WP.

Intended use: Support BNR staff’s policy recommendations to the monetary policy committee through regular forecasting rounds and structural analysis.
Policy-relevant mechanisms emphasized:
- Transmission of monetary policy under an interest-rate-based framework with managed exchange rate.
- Interaction of agricultural output and harvest cycles with inflation dynamics.
- Impact of fiscal policy and external aid flows on macroeconomic projections.