This collections contains bibliographic information and abstracts of Master theses and dissertation in the School of Economics held in Kenyatta University Library
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Browsing MST-School of Economics by Author "Chebet, Elijah Ruttoh"
(2014-03-06) Chebet, Elijah Ruttoh; Gachanja, Paul Mwangi
Several empirical studies have confirmed that there is a positive relationship
between credit growth and economic growth. The Central Bank of Kenya (CBK) has
in the past attempted to use monetary policy to influence the direction of credit
growth with the aim of improving economic growth in Kenya.
The objective of this study therefore is to determine whether there is a relationship
between credit growth and economic growth, whether an increase in credit does in
fact improve economic growth in Kenya and whether a reduction in the CBR
reduces the commercial bank lending rates and thereby increasing the amount of
credit available in Kenya.
Using data between 1971 and 2008 and Vector Autoregression (VAR) model, it is
found that even though credit growth deviates so much from the long run trend, it
still traces economic growth and therefore using monetary policy to target credit
growth with the aim of irifluencing the direction of economic growth is still
beneficial in the long run. The results also show that lending rates reduces following
an expansionary monetary policy. This is consistent with expectations but the
lending rates seem to respond a bit sluggishly. The findings further show that loans
and advances will increase if there is a positive shock in the lending rates. This
finding is contrary to expectations. This positive impact could imply that loan
demand in Kenya is inelastic. The findings further show that, other than own shocks,
the variations in credit growth mainly come from the changes in lending rates and
GDP. More emphasis therefore need to be put in these two variables to avoid too
violent volatility of credit growth.