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A Dynamic Model of Inflation for Kenya, 1974–1996
Author:
Njuguna S. Ndung'unull

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Mr. Dick Durevallnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 1999: Issue 097
Language:
English
Publication Date:
01 Jul 1999
DOI:
https://doi.org/10.5089/9781451852004.001
ISBN:
9781451852004
ISSN:
1018-5941
Pages:
36
Keywords:
WP; exchange rate; maize-price inflation; Kenya; Inflation; Inertia; Money demand; Food supply; Real exchange rate; Terms of Trade; Cointegration; Error Correction Model; inflation inertia; inflation expectation; drives inflation; rate of inflation; Exchange rates; Real exchange rates; Monetary base
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper analyses the dynamics of inflation in Kenya during 1974–96, a period characterized by external shocks and internal disequilibria. By developing a parsimonious and empirically constant error correction model the paper finds that the exchange rate, foreign prices, and terms of trade have long-run effects on inflation, while the money supply and interest rate only have short-run effects. The dynamics of inflation are also found to be influenced by food supply constraints. Moreover, inertia is important for the period up to 1993, when about 40 percent of current inflation was transmitted to the next quarter. After 1993 inertia drops to about 10 percent.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1999: Issue 097