Exchange rate pass-through to domestic prices in Kenya
- Authors: Mnjama, Gladys Susan
- Date: 2011
- Subjects: Kenya -- Economic conditions , Kenya -- Economic conditions -- Econometric models , Foreign exchange rates -- Kenya , Stocks -- Prices -- Kenya , Banks and banking -- Kenya , Cointegration , Econometrics , Inflation (Finance) -- Kenya
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:975 , http://hdl.handle.net/10962/d1002709 , Kenya -- Economic conditions , Kenya -- Economic conditions -- Econometric models , Foreign exchange rates -- Kenya , Stocks -- Prices -- Kenya , Banks and banking -- Kenya , Cointegration , Econometrics , Inflation (Finance) -- Kenya
- Description: In 1993, Kenya liberalised its trade policy and allowed the Kenyan Shillings to freely float. This openness has left Kenya's domestic prices vulnerable to the effects of exchange rate fluctuations. One of the objectives of the Central Bank of Kenya is to maintain inflation levels at sustainable levels. Thus it has become necessary to determine the influence that exchange rate changes have on domestic prices given that one of the major determinants of inflation is exchange rate movements. For this reason, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to domestic prices in Kenya. In addition, it takes into account the direction and size of changes in the exchange rates to determine whether the exchange rate fluctuations are symmetric or asymmetric. The thesis uses quarterly data ranging from 1993:Ql - 2008:Q4 as it takes into account the period when the process of liberalization occurred. The empirical estimation was done in two stages. The first stage was estimated using the Johansen (1991) and (1995) co integration techniques and a vector error correction model (VECM). The second stage entailed estimating the impulse response and variance decomposition functions as well as conducting block exogeneity Wald tests. In determining the asymmetric aspect of the analysis, the study followed Pollard and Coughlin (2004) and Webber (2000) frameworks in analysing asymmetry with respect to appreciation and depreciation and large and small changes in the exchange rate to import prices. The results obtained showed that ERPT to Kenya is incomplete but relatively low at about 36 percent in the long run. In terms of asymmetry, the results showed that ERPT is found to be higher in periods of appreciation than depreciation. This is in support of market share and binding quantity constraints theory. In relation to size changes, the results show that size changes have no significant impact on ERPT in Kenya.
- Full Text:
- Date Issued: 2011
Financial reforms and interest rate spreads in the commercial banking sector in Kenya
- Authors: Munene, Daniel
- Date: 2006
- Subjects: Finance -- Kenya , Banks and banking -- Kenya , Economics -- Kenya , Interest rates -- Kenya , Economic development -- Kenya
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1070 , http://hdl.handle.net/10962/d1007711 , Finance -- Kenya , Banks and banking -- Kenya , Economics -- Kenya , Interest rates -- Kenya , Economic development -- Kenya
- Description: Financial reforms were a major component of structural adjustment programs deemed necessary for developing countries in the mid 1980s. These were not only meant to improve the sector, but would ultimately enhance economic growth and help in poverty alleviation. At the top of these reforms was financial liberalisation. Kenya, like many other sub-Saharan African countries, undertook financial liberalisation in 1991, one of the measures was decontrolling interest rates. With market driven interest rates in place it was assumed that there would be increased efficiency in bank lending, as well as growth in credit availability as deposits increased. A key indicator of this improved intermediation process would be a narrowing interest rates spread, that is, the margin between the deposit and lending rate. Paradoxically, however, the expected benefits of these reforms did not accrue to Kenya's banking sector. This study focuses on financial reforms and the spread of interest rates in Kenya's banking sector. Using a trend analysis, spanning the period before and after liberalisation, interest rates spread are shown to have escalated dramatically upwards after liberalisation. An analysis of three macroeconomic variables, namely, the exchange rate, inflation rate and economic growth offer little, or inconclusive evidence, that they were the main causes of the wide interest rate spread. In fact, the spread is closely linked to institutional/structural factors such as non-competitiveness in the banking sector, imprudent lending practices and poor and/or inadequate banking supervision. Policies for improving the institutional infrastructure and thus moderating the spreads are highlighted.
- Full Text:
- Date Issued: 2006