Implication of the Taylor Rule on Real Exchange Rate Movement in Kenya
AbstractMore often, persistent fluctuations in the real exchange rate tends to have significant adverse impact on prices, output and inflation expectations in an economy. Therefore, the ability to predict its movement over time with relative degree of accuracy is imperative for effective monetary policy formulation and implementation. In this study, we examine the movement of the Kenyan Shilling against the US Dollar by comparing fitted with the actual real exchange rate trends in the context of a modified Taylor rule. We find that, except for the period marked by exchange rate volatility, the modified Taylor rule maps well the actual movement in real exchange rate and hence, it can reliably be used to predict future trends in the real exchange rate.
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Bibliographic InfoArticle provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.
Volume (Year): 6 (2006)
Issue (Month): 2 ()
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Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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