A VAR Analysis of Kenya’s Monetary Policy Transmission Mechanism: How Does the Central Bank’s REPO Rate Affect the Economy?
IMF Working Papers, December 1, 2006
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- A VAR Analysis of Kenya’s Monetary Policy Transmission Mechanism: How Does the Central Bank’s REPO Rate Affect the Economy?
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Bibliographic details
- Authors: Kevin C Cheng
- Published: December 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865608.001
Summary and main findings
- Examines the impact of a monetary policy shock on output, prices, and the nominal effective exchange rate for Kenya using data during 1997–2005.
- Main empirical results:
- An exogenous increase in the short-term interest rate tends to be followed by a decline in prices.
- An exogenous increase in the short-term interest rate tends to be followed by appreciation in the nominal exchange rate.
- An exogenous increase in the short-term interest rate has insignificant impact on output.
- Variance decomposition result:
- Variations in the short-term interest rate account for significant fluctuations in the nominal exchange rate and prices.
- Variations in the short-term interest rate account for little of output fluctuations.
Methodology and scope
- Analytical approach: Techniques commonly used in the vector autoregression literature (VAR).
- Sample period: 1997–2005.
- Variables analyzed: output, prices, nominal effective exchange rate, short-term interest rate.
Subject and keywords
- Subject: Monetary base, Monetary transmission mechanism, Nominal effective exchange rate, Short term interest rates, Vector autoregression
- Keywords: interest rate, monetary policy shock, nominal exchange rate, WP
Source: IMF Working Papers — Kevin C Cheng. "A VAR Analysis of Kenya’s Monetary Policy Transmission Mechanism: How Does the Central Bank’s REPO Rate Affect the Economy?", December 1, 2006, Working Paper No. 2006/300, DOI: https://doi.org/10.5089/9781451865608.001.