Effect of Exchange Rate Fluctuation on Rwandan Tea Price and Exports

Abstract: In small and developing economies, exchange rate volatility is important as it creates gains or losses to farmers and exporters. This paper analyses the effect of exchange rate volatility on Rwanda tea price and exports. The analysis used monthly time series data on bilateral exports and real effective exchange rates from January 2001 to December 2016. The analysis is done with the co-integration methods and error correction model using the autoregressive distributed lag procedure and GJR-GARCH model. The findings show that an increase in exchange rate volatility resulted in an increase in Rwandan tea exports price in the long run and decrease in tea exports in the short run. The real income in importing country increases tea price and volume exports in the long run and short run. There should be the review of monetary policy to address the volatility of exchange rate and hedging system introduction to respond and to stabilize the exchange rate.