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Monetary Policy Implementation and Volatility Transmission along the Yield Curve: The Case of Kenya
Author:
Mr. Emre Alper
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Mr. R. Armando Morales
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Mr. Fan Yang
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 120
Language:
English
Publication Date:
20 Jun 2016
DOI:
https://doi.org/10.5089/9781498313377.001
ISBN:
9781498313377
ISSN:
1018-5941
Pages:
29
Keywords:
WP; Kenya; rate; Monetary policy implementation; inflation targeting; volatility transmission; interbank rate; overnight rate; headline inflation; inflation objective; money market rate; monetary policy Analysis Unit; interbank rate corridor; inflation target range; interbank market rate; overnight market interest rate; inflation modeling; inflation expectation; Interbank rates; Central bank policy rate; Yield curve; Treasury bills and bonds; Monetary policy frameworks; Africa; Global; interest rate volatility; policy rate change; interbank rate series; year inflation expectation
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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 analyzes the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g., T-bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward-looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand, and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forward-looking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short-term yields significantly by smoothing out the overnight interest rates around the policy rate.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund