Analysis of factors affecting inflation rate in Rwanda (1990-2009)

DEDICATION

To the Almighty ALLAH,

For your Mercy, Grace and Love,

To my mother, brothers and sisters and my late father who never lived to see this dissertation,

For your immeasurable love, tolerance, guidance and care, I respect.

To all who are the dear to me,

I dedicate this memoir.

ACKNOWLEDGEMENT

The success of a dissertation is a big endeavor that one never claims to own alone and when it comes to expressing gratitude, it is always hard to find who to thank and who to leave. This is because various people played different roles under different circumstances in their particular capacities through out the period of writing my dissertation. However let me attempt to this great task:

I owe special thanks to my Mum who managed to forego all and made their son an opportunity cost, without forgetting my brothers and my sisters who were always there for me during my academic struggle. May God bless them abundantly.

I extend my sincere gratitude to my supervisor Mr. Alain Claude KARASIRA, I am grateful for their advice, instructions and time sacrificed towards the success of this work.

I am greatly indebted to my friends for both moral and academic support.

Lastly I wish to thank the entire staff of the Kigali Institute of Education; mostly the Faculty of Social Sciences and Business studies, Department of Economics and Business studies may the almighty God award you abundantly.

TABLE OF CONTENTS

ABSTRACT II

DECLARATION III

APPROVAL IV

DEDICATION V

TABLE OF CONTENTS VII

LIST OF ABBREVIATIONS IX

LIST OF TABLES & GRAPHS X

CHAPTER ONE: INTRODUCTION 1

1.1 Background 1

1.2 The research Problem 2

1.3 Research objectives 3

1.4 Research Hypotheses 4

1.5 Significance of Study 4

1.6 Scope of the study 4

1.7 Organization of the study 5

CHAPTER TWO: LITERATURE REVIEW 6

2.1 DEFINITION OF KEY CONCEPTS 6

2.1.1 Inflation 6

A. Different types of inflation 6

B. Causes of inflation 8

C. Measuring Inflation 9

2.1.2 Consumer Price Index 10

2.1.3 Gross Domestic Product 12

2.1.4 Interest rate 12

2.1.5 Money Supply 13

2.1.5 Exchange rate 13

2.2 THEORETICAL FRAMEWORK 14

2.3 EMPIRICAL FRAMEWORK 17

CHAPTER THREE: RESEARCH METHODOLOGY 20

3.1 DATA COLLECTION 20

3.1.1 Techniques 20

3.1.2 Types and sources of data 20

3.2 DATA ANALYSIS 21

3.2.1 Methods 21

CHAPTER FOUR: DATA PRESENTATION ANALYSIS AND INTERPRETATION 24

4.1 DATA PRESENTATIN 24

4.1.1 EVOLUTION OF CPI, M₂, Real GDP, ER and LR (1990-2009) 24

4.2 DATA ANALYSIS AND INTERPRETATION 25

4.2.1 Correlation between variables 25

A. Correlation between Consumer Price Index and Money Supply (M2) 25

B. Correlation between Consumer Price Index and Real Gross Domestic Product 26

C. Correlation between Consumer Price Index and Exchange rate 27

D. Correlation between Consumer Price Index and Lending rate 28

4.2.2 Regression equation of the model 29

1. Summary of output from SPSS regression analysis of multivariate 29

2. Specification of general model 30

3. Predictive accuracy of the general model 30

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS 31

BIBLIOGRAPHY 33

APPENDIXES 36

Appendix 1: Regression analysis of consumer price index and money supply 37

Appendix 2: Regression analysis of consumer price index and Gross domestic product 38

Appendix 3: Regression analysis of consumer price index and Exchange Rate 39

Appendix 4: Regression analysis of consumer price index and Lending Rate 40

Appendix 5: SPSS Result of Regression Analysis 41

Appendix 6: T-Table 42