Inflation, Balance of Payments and Exchange Rate in Kenya
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Date
2020
Authors
Silas, Peter Mwiathi
Cheboi, Austin Kiptoo
Journal Title
Journal ISSN
Volume Title
Publisher
Creative Commons Attribution
Abstract
Kenya has had inflat ion fluctuat ion over the over years. The CBK has
always put efforts to maintain the inflat ion rate at 5% with a variat ion of 2.5%.
Despite the efforts to achieve the vision 2030 goal, fluctuat ions are experienced.
Exchange rate has been varying over years globally but in Kenya it has been
increasingly varying. The increment in the exchange rate raises the prices levels
and affects the product ion of imports. Policies on the exchange rate enhance the
cont rol of inflat ion as well as making the domest ic goods compete internat ionally.
Hence, the study was to establish the relat ionship between exchange rate and
Inflat ion in Kenya in the short run between 2012-2018. Purchasing Power Parity
was used to establish the relat ionship between inflat ion and exchange rate while
the theory of absolute advantage and monetary approach was used to establish the
relat ionship between exchange rate and BOP in Kenya. The data was collected
from sources including CBK and KNBS, then diagnost ic test was done for
stat ionarity. Granger causal ity was used to determine the monthly relat ionship
between the three macroeconomic variables. The results found that the p-vale was
greater than the crit ical values, hence fail to reject the null hypothesis, therefore
no granger causality between inflat ion and exchange rate in the short run,
indicat ing that exchange rate is not the best variable for policy implicat ion in the
cont rol of inflat ionary economy. Henceforth, the government can factor other
economic variables such as interest rate in short run to stabilize the variat ions in
the inflat ion in Kenya.
Description
Research Article
Keywords
Inflation, Balance of payments, Exchange Rate.
Citation
Silas Peter Mwiathi and Cheboi Austin Kiptoo; (2020);Inflation, Balance of Payments and Exchange Rate in Kenya. IAR J Huma Soc Sci .1(3) 180-185.