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A Dynamic Model of Inflation for Kenya, 1974-1996

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  • Njuguna S. Ndung'u
  • Dick Durevall

Abstract

This paper analyses the dynamics of inflation in Kenya during 1974–96, a period characterized by external shocks and internal disequilibria. By developing a parsimonious and empirically constant error correction model the paper finds that the exchange rate, foreign prices, and terms of trade have long-run effects on inflation, while the money supply and interest rate only have short-run effects. The dynamics of inflation are also found to be influenced by food supply constraints. Moreover, inertia is important for the period up to 1993, when about 40 percent of current inflation was transmitted to the next quarter. After 1993 inertia drops to about 10 percent.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/97.

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Length: 36
Date of creation: 01 Jul 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/97

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Cited by:
  1. Nandwa, B., 2006. "Implication of the Taylor Rule on Real Exchange Rate Movement in Kenya," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
  2. Kevin C. Cheng, 2006. "A VAR Analysis of Kenya's Monetary Policy Transmission Mechanism," IMF Working Papers 06/300, International Monetary Fund.
  3. Loening, Josef L. & Durevall, Dick & Birru, Yohannes A., 2009. "Inflation dynamics and food prices in an agricultural economy : the case of Ethiopia," Policy Research Working Paper Series 4969, The World Bank.
  4. Durevall, Dick & Loening, Josef L. & Ayalew Birru, Yohannes, 2013. "Inflation dynamics and food prices in Ethiopia," Journal of Development Economics, Elsevier, vol. 104(C), pages 89-106.
  5. LOENING, Josef & TAKADA, Hideki, 2008. "Inflationary Expectations In Ethiopia: Some Preliminary Results," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 159-176.
  6. Asghar Shahmoradi & Hamed Shakouri, 2010. "Investigation on the Impact of an Energy Desubsidization Shock on the General Price Index Via a Nonlinear Inflation Model: Case of Iran," Iranian Economic Review, Economics faculty of Tehran university, vol. 15(3), pages 33-51, fall.

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