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Adjustment and liberalization in Kenya: the financial and foreign exchange markets

Author

Listed:
  • Njuguna S. Ndung'U

    (Department of Economics, University of Nairobi, Kenya)

  • Rose W. Ngugi

    (Department of Economics, University of Nairobi, Kenya)

Abstract

The paper analyses the impact of liberalization on two key and interrelated markets in Kenya, the financial and the foreign exchange markets. It is shown that the inflation profile changes with exchange rate policy, interest rates have not been market determined even after liberalization, interest rate spreads have increased with liberalization, a reflection of inefficiency in the financial market, while foreign and domestic interest rate differential and short-term speculative capital inflows affect the real exchange rate. The policy conflict of targeting a competitive exchange rate and low inflation with interest rate as the only instrument is shown to lead to a policy dilemma and to complicate macroeconomic management in the 1990s in an environment where fiscal adjustment has not taken place. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Njuguna S. Ndung'U & Rose W. Ngugi, 1999. "Adjustment and liberalization in Kenya: the financial and foreign exchange markets," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 465-491.
    • Handle: RePEc:wly:jintdv:v:11:y:1999:i:3:p:465-491
    DOI: 10.1002/(SICI)1099-1328(199905/06)11:3<465::AID-JID595>3.0.CO;2-9
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    References listed on IDEAS

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    Cited by:

    1. Kodongo, Odongo & Ojah, Kalu, 2012. "The dynamic relation between foreign exchange rates and international portfolio flows: Evidence from Africa's capital markets," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 71-87.
    2. Robert Pollin & James Heintz, 2017. "Expanding Decent Employment in Kenya: The Role of Monetary Policy, Inflation Control, and the Exchange Rate," Research Report 6, International Policy Centre for Inclusive Growth.
    3. Judith Tyson & Terry McKinley, 2014. "Financialization and the Developing world:Mapping the Issues," Working papers wpaper38, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    4. Kodongo, Odongo & Ojah, Kalu, 2013. "Real exchange rates, trade balance and capital flows in Africa," Journal of Economics and Business, Elsevier, vol. 66(C), pages 22-46.

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