Assessing the Stability of Money Multipliers: Evidence from Kenya

Abstract

This paper investigated the stability of money multiplier using Kenyan data for the period 1983- 2015.This paper used Maki(2012) tests for cointegration allowing for unknown number of structural breaks and the Dynamic Ordinary Square method to estimate long run parameters. The findings of this paper shows that in the short run money supply function is unstable , however in the long run money supply function is stable. Another finding of this paper is that there is a one to one positive relationship between money supply and high powered money in Kenya. The implication is that money supply is an effective monetary policy target variable, hence can be used by Central Bank of Kenya in implementing its monetary policy in order to achieve the macroeconomic goals.