PT-School of Economics

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Browsing PT-School of Economics by Author "Njuru, Stephen Gitahi"

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    The impact of monetary policy on economic growth and price stability in Kenya: 1992-2013
    (Kenyatta University, 2014-11-28) Onderi, Vincent Nyambati; Njuru, Stephen Gitahi
    .The government of Kenya's economic blueprint dubbed 'Kenya Vision 2030' acknowledges the importance of maintaining a stable macro-economic environment as it ensures stable levels of growth, employment creation and poverty reduction. While in d,eveloped economies, changes in monetary policy affect real economic activity in the short-run but only prices in the long-run, the question of whether these tendencies apply to developing countries remain open to debate. Literature is divided over monetary instrument to be employed in developing nations. While developed nations target interest rates as their intermediate targets, developing nations employ monetary aggregates as their intermediate targets mostly due to inefficient financial market and uncompetitive banking sector. Despite Kenya implementing monetary policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low economic growth and high rates of inflation. This inability of monetary policy to effectively maximize its objectives is as a result of the shortcomings of monetary instruments used in most developing countries including Kenya. Preceding from such a background, this study finds significance by seeking to inform policymakers which policy variable relates to output and prices; this would be instrumental in guiding the choice of monetary policy instruments applied, their overall effectiveness and thus assist the Central Bank of Kenya (CBK) in meeting its policy goals of low inflation and sustainable economic growth. The study employs Structural Vector Autoregression model (SVAR) to explore the effects of monetary policy on output and prices in Kenya for the period 1992-2013. The study will in addition, employ a battery of robust checks to ensure consistency in model specification and results