An Applied Macro-econometric Model for Supply Constrained African Economy: A Rwandan Macro Model

Alemayehu Geda, Addis Yimer


In this study we have developed a macro-econometric model for a typical supply constrained African economy. This is aimed at developing a theoretical and empirical template for such policy tools that are increasingly being demanded in African ministries of finance and central banks. We have concretized it by building a macro-econometric model for Rwanda. The Rwanda macro-econometric model has 107 equations, of which 72 are endogenous. In addition, a supplementary ARIMA based model with 33 equations for exogenous variable is built to make the model useful for forecasting. The fiscal, balance of payment and money supply block of the model is fairly disaggregated to offer an adequate picture of the macro economy. An econometric estimation of the core behavioral equations of the model using equilibrium [error]-correction approach, with the database that stretches from 1960 to 2009 is made. The model can easily be further extended to the support budgeting, forecasting and macro-economic policy analysis work at the relevant ministries and central banks in Africa. We have managed to successfully solve the model and reproduced historical values from 1999 to 2009, and forecasted major macro variables for the year 2010 to 2015. We have also used the model to conduct a policy and external shock related simulation exercise that is very important for policy makers. We hope this model offers a theoretical and empirical framework for building similar applied macro models across Africa.

Full Text:



Banerjee, A., J. Dolado, J.W. Galbraith & D.F. Hendry. 1993. Co-Integration, Error-correction, and the Econometric Analysis of Non-Stationary Data. Oxford: Oxford University Press.

Bank of Uganda (BoU). 2010. A Small Scale Macro-economic Model for Uganda. Bank of Uganda Working Paper, BOUWP/07/10,Kampala,Uganda.

Elliott, J., S.Y. Kwack & G. S. Tavlas. 1986. An Econometric Model of the Kenyan Economy. Economic Modelling, 3(1): 2–30.

Geda, A. 2002. Finance and Trade in Africa: Macro-economic Response in the World Economy Context. London/Basingstoke: Palgrave-McMillan.

—. 2011. Readings on the Ethiopian Economy. Addis Ababa: Addis Ababa University Press.

Geda, A. & A. Yimer. 2013. A Macro-econometric Model for Rwanda’ IAES Working Paper NO 2, at or www.Alemayehom

Geda, A. & K. Taffere. 2011. The Galloping Inflation in Ethiopia: A Cautionary Tale for Aspiring Developmental African Countries. (Unprocessed, Department of Economics, Addis Ababa University; and also in A. Geda. Readings on Ethiopian Economy. Addis Abeba: Addis Abeba University Press.

Geda, A., N. Nudng’u & D. Zerfu. 2012. Applied Time Series Econometrics: A Practical Guide for Macro-economic Researchers in Africa. Nairobi: University of Nairobi Press.

Harris, J.R. 1985. A Survey of Macro-economic Modelling in Africa. Paper presented at a meeting of Eastern and Southern Africa Macro-economic Research Network, December 7–13, Nairobi, Kenya.

Hendry, D. F. (995. Dynamic Econometrics. Oxford: Oxford University Press.

Horton, S. & J. Mclaren. 1989. Supply Constraints in the Tanzanian Economy: Simulation Results from a Macro-econometric Model. Journal of Policy Modelling, 11(2):297–313.

—. 2004. The Theoretical Model of the Ethiopian Ministry of Finance and Economic Development Model. MoFED Working Paper, Ministry of Finance and Economic Development, government of Ethiopia (also in Geda, 2011).

Huizinga, F., A. Geda, N.S. Ndung’u & S.N. Karingi. 2001. Theoretical Base for the Kenya Macro Model: The KIPPRA-Treasury Macro Model. KIPPRA Discussion Paper No. 11, KIPPRA, Nairobi, Kenya ( )

Johansen, S. 1988. Statistical Analysis of Co-integration Vectors. Journal of Economic Dynamics and Control, 12:231–54.

—. 1991. “Estimation and Hypothesis Testing of Co-integration Vectors in Gaussian Vector Autoregressive Models” Econometrica, 59(6): 1551–1580.

Kidane, A. 1991. A Macro-economic-Demographic Model for Ethiopia. African Economic Research Consortium. Research Paper NO 7.

Morales, R. A. & F. Raei. 2013. The Evolving Role of Interest Rate and Exchange Rate Channels in Monetary Policy Transmission in EAC Countries. IMF Working Paper, No WP/13/X. Washington, D.C.: IMF.

Musila, J. W. 2002. An Econometric Model of the Malawian Economy. Economic Modelling, 19(2): 295–330

Musila, J. W. & U.L.G. Rao. 2002. A Forecasting Model of the Kenyan Economy. Economic Modelling, 19(5):801–814.

Pesaran, M. H. & R. Smith. 1998. Structural Analysis of Co-integration VARs. Journal of Economic Surveys, 12: 471–505.

Pesaran, M.H., Shin, Y., Smith, R.J. 2001. Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16: 289–326.

Republic of Rwanda, Ministry of Finance and Economic Planning. 2012.

Consolidated Annexes to the 2012/13–2014/15 Budget Framework Paper

Thomas, R.L. 1993. Introductory Econometrics: Theory and Application. London: Longman.

Tjipe, T., H. Nielsen & E. Uanguta. 2004. Namibia Macro-econometric Model (NAMEX). Bank of Namibia Research Department, Macro-economic Modelling and Forecasting Division. Namibia.

Were, M., A. W. Kamau, M. M. Sichei & M. Kiptui. 2013. A Theoretical Framework for Kenya’s Central Bank Macro-econometric Model. Africa Growth Initiative Working Paper No 10, May 2013.


  • There are currently no refbacks.