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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?
Author:
Mr. Kevin C Cheng
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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 300
Language:
English
Publication Date:
01 Dec 2006
DOI:
https://doi.org/10.5089/9781451865608.001
ISBN:
9781451865608
ISSN:
1018-5941
Pages:
26
Keywords:
WP; interest rate; nominal exchange rate; monetary policy shock
Legal-disclaimer:
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 examines the impact of a monetary policy shock on output, prices, and the nominal effective exchange rate for Kenya using data during 1997–2005. Based on techniques commonly used in the vector autoregression literature, the main results suggest that an exogenous increase in the short-term interest rate tends to be followed by a decline in prices and appreciation in the nominal exchange rate, but has insignificant impact on output. Moreover, the paper finds that variations in the short-term interest rate account for significant fluctuations in the nominal exchange rate and prices, while accounting little for output fluctuations.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2006: Issue 300