Adam, C. (1992) “On the Dynamic Specification of Money Demand in Kenya,” Journal of African Economies, Vol. 1, No. 2, pp. 233–70.
Adam, C., Ndulu, B., and Sowa, N. K. (1996) “Liberalisation and Seigniorage Revenue in Kenya, Ghana, and Tanzania,” Journal of Development Studies, Vol. 32, No. 4, pp. 531–53.
Canetti, E. and Greene, J. (1992) “Monetary Growth and Exchange Rate Depreciation as Causes of Inflation in African Countries: An Empirical Analysis,” Journal of African Finance and Economic Development, Vol. 1, No. 1, pp. 37–62.
de Brouwer, G., and N. R. Ericsson, (1998) “Modeling Inflation in Australia,” Journal of Business and Economics Statistics (forthcoming).
De Groot, A. W. (1991) “Adjustment Policies and the Real Exchange Rate in Kenya since 1975,” World Development, Vol. 19, No. 10, pp. 1399–1407.
Durevall, D. (1998) “The Dynamics of Chronic Inflation in Brazil, 1968–1985,” Journal of Business and Economics Statistics (forthcoming).
Elbadawi, I., and R., Soto, (1997) “Real Exchange Rates and Macroeconomic Adjustment in Sub-Saharan Africa and Other Developing Countries,” Journal of African Economies Vol. 6, No. 3, pp. 74–120.
Ericsson, N. R., Campos J., and Tran H. (1990) “PC-GIVE and David Hendry’s Econometric Methodology,” Revista de Econometria, Vol. 10, pp. 7–117.
Hanson, J. (1985) “Inflation and Imported Input Prices in some Inflationary Latin American Economies,” Journal of Development Economies, Vol. 18, Nos. 2/3, pp. 395–410.
Harberger, A. C. (1963) “The Dynamics of Inflation in Chile, “ in Christ, C. F. (ed) Measurement of Economics; Studies in Economics and Econometrics in Memory of Yehunda Grunfield, Stanford University Press.
Isaksson, A. (1997) Essays on Financial Liberalisation in Developing Countries: Capital Mobility, Price Stability, and Savings, Ekonomiska Studier No. 71, Department of Economics, Göteborg University.
Juselius, K. (1991) “Domestic and Foreign effects on Prices in an Open Economy: The Case of Denmark,” Journal of Policy Modeling, 14, pp. 401–428.
Kamin, S. (1996) “Real Exchange Rates and Inflation in Exchange Rate-Based Stabilizations: An Empirical Examination,” Board of Governors of the Federal Reserve System, Washington, International Finance Discussion Papers No. 554, 1996.
Killick, T (1984) “Kenya, 1975–1981” in T. Killick, ed., The IMF and Stabilization: Developing Country Experiences, London, Heinemann Educational Books, 1984.
Liviatan, N. and Piterman S., (1986) “Accelerating Inflation and Balance of Payment Crises, 1973–1984” in Ben-Porath (ed.) The Israeli Economy: Maturing through Crises. Cambridge Mass. Harvard University Press.
London, A. (1989) “Money, Inflation and Adjustment Policy In Africa: Some further Evidence, “ African Development Review, Vol. 1 No. 1.
Mwega, F.M. and Ndung’u, N.S. (1996) “Macroeconomic Policies and Exchange rate Management in Kenya” Presented at the ICEG conference in Washington D.C., September 1996, A Collaborative AERC/ICEG Project on Macroeconomic Policies and Exchange Rate Management in Africa.
- Search Google Scholar
- Export Citation
)| false ( Mwega, F.M.and Ndung’u, N.S. 1996) “ Macroeconomic Policies and Exchange rate Management in Kenya” Presented at the ICEG conference in Washington D.C., September 1996, A Collaborative AERC/ICEG Project. on Macroeconomic Policies and Exchange Rate Management in Africa
Ndung’u, N.S. (1996) “An exchange Rate Pass-Through Equation for Kenya: 1970–1993” African Journal of Economic Policy, Vol. 3 No. 1, June.
Ndung’u, N.S. (1993) Dynamics of the Inflationary Process in Kenya, Ekonomiska Studier No. 47, Department of Economics, Göteborg University.
Osterwald-Lenum, M. (1992) “A Note with Quantiles of the Asymptotic Distribution of Maximum Likelihood Cointegration Rank Test Statistics” Oxford Bulletin of Economics and Statistics, Vol. 54 No. 3.
Ryan, T.C. I. and Milne, W.J. (1994) “Analysing Inflation in Developing Countries: An Econometric Study with Application to Kenya” Journal of Development Studies, Vol. 31, No. 1, 134–156.
Dick Durevall at University of Gothenburg, Sweden and Njuguna S. Ndung’u at University of Nairobi, Kenya. This paper was completed while Njuguna S. Ndung’u was a visiting scholar in the IMF/African Economic Research Consortium (AERC) program. The authors would like to thank Paul Masson, Pietro Garibaldi, Katarina Juselius, Catherine Pattillo, and Jouko Vilmunen for helpful comments.
The Forex-Cs entitled one to some amount of foreign exchange without having to go through the long delays of foreign exchange licensing process. Forex-Cs were purchased at the official rate from the Central Bank in foreign exchange without having to declare the source of foreign exchange. These certificates attracted an interest rate and could thus be marketed as any other paper asset.
All the graphs and numerical results were obtained with PCGIVE and PCFIML.
Results from cointegration tests with the parallel exchange rate can be obtained from the authors.
During the crawling peg regime, it has been argued that even though the parallel market was illegal, the central bank took into account the parallel market rate in determining the crawl. This is consistent with backward indexation arguments of the official exchange rate to the parallel market rate (see Ndung’u 1998).
See Johansen (1995) for details about cointegration analysis and tests implemented in this section.
The following impulse dummies were used: devaluations, 1981:1, 1983:1 and 1993:2; price instability related to price decontrol, electoral greasing and aid embargo 1992:1 and 1992:4; a sharp increase in output, 1979:2.
Results from cointegration tests showing that RD-R form a stationary vector can be obtained from the authors.
The unrestricted estimate of the coefficient of y is −0.37 so it seems reasonable to test if the data do not reject −0.5, the value predicted by the inventory-theoretic approach to money demand associated with Baumol and Tobin.
The choice of EC2 as money demand relation instead of the other cointegrating vector is arbitrary but does not affect the results (see Section 7 for diagnostic tests).
The three impulse dummies are motivated as follows: D2 (1990:4), the effects of the Gulf crisis resulted in increases in several government-controlled prices during last quarter of 1990 (Economic Survey pp. 47-48, 1991). D3 (1992:2), price decontrol of 72 items out of which several entered the basket of consumer goods (Economic Survey pp. 64-65, 1993). D4 (1993:1-93:2), disturbances related to the floating of the Kenya shilling, which led to a 50 percent depreciation, and the subsequent reversal of the decision to float the shilling in March (Economic Survey p. 65, 1993).
The reason Harberger (1963) estimated his model in rates of change was that he thought it was too easy to get a high R2 using log-levels.
The reduction in inertia is likely to be due to a combination of factors, the most important being the implementation of a successful stabilization program, the shift away from a discretionary crawl to a floating exchange rate regime, and the decrease in the number of administratively set prices.
It should be noted, however, that the inclusion of the dummy variables removes the impact of any outliers in the data.