Determinants of Equilibrium Real Exchange Rate and its Misalignment in Kenya 2000-2016: An Autoregressive Distributed Lag Approach

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dc.contributor.authorGachoki, Charles
dc.contributor.authorOkeri, Susan
dc.contributor.authorKorir, Julius
dc.date.accessioned2022-05-19T08:27:24Z
dc.date.available2022-05-19T08:27:24Z
dc.date.issued2019
dc.descriptionA Research Article in the International Journal of Economicsen_US
dc.description.abstractPurpose: This paper investigates the determinants of Kenya’s real exchange rate and determine the real exchange rate and its misalignment from the long run equilibrium level using quarterly data covering 2000 – 2016. Methodology The Behavioral Equilibrium Exchange Rate approach to determine the extent of exchange rate misalignment is adopted. The study adopted a dynamic Auto Regressive Distributed Lag bounds testing modeling approach. Findings: The estimation results show that, net foreign assets, productivity, world oil prices, trade openness and terms of trade influence Kenya’s long-run real exchange rate. However, government expenditure, and tax revenue were found to have no effect on the real exchange rate. The study results show that the real exchange rate is driven by the economic fundamentals and in terms of misalignment the exchange rate is overvalued to a maximum of 5.9 percent and undervalued up to 5.2 percent but overally the magnitude varies across the period of study. The Shilling is on average undervalued. Unique contribution to theory, practice and policy: Kenya’s exchange rate is closely aligned to its long run fundamentals and the adoption of the floating exchange rate regime achieved one of the intended purpose namely reduction of exchange rate misalignment associated with overvaluation. The monetary authority should ensure the exchange rate remains stable and within the 6 percent range while ensuring the particular fundamentals that can lead to overvaluation are monitored.en_US
dc.identifier.citationGachoki, C., Okeri, S., & Korir, J. (2019). DETERMINANTS OF EQUILIBRIUM REAL EXCHANGE RATE AND IT’S MISALIGNMENT IN KENYA 2000-2016: AN AUTOREGRESSIVE DISTRIBUTED LAG APPROACH. International Journal of Economics, 4(1), 16-42.en_US
dc.identifier.issn2518-8437
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/23751
dc.language.isoenen_US
dc.publisherIPRJBen_US
dc.subjectMisalignmenten_US
dc.subjectDynamicsen_US
dc.subjectFundamentalsen_US
dc.titleDeterminants of Equilibrium Real Exchange Rate and its Misalignment in Kenya 2000-2016: An Autoregressive Distributed Lag Approachen_US
dc.typeArticleen_US
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