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Interest rate dynamics in Kenya

Author

Listed:
  • Guglielmo Maria Caporale
  • Luis Alberiko Gil-Alaña

    (Navarra Center for International Development)

Abstract

This paper analyses the implicit dynamics underlying the interest rate structure in Kenya. For this purpose we use data on four commercial banks’ interest rates (Deposits, Savings, Lending and Overdraft) together with the 91-Day Treasury Bill rate, for the time period July 1991 – August 2010, and apply various techniques based on long-range dependence. The results indicate that all series examined are nonstationary with orders of integration equal to or higher than 1. The analysis of various spreads suggests that they also are nonstationary I(1) variables, the only evidence of mean reversion being obtained in the case of the Lending – Saving spread with autocorrelated errors.

Suggested Citation

  • Guglielmo Maria Caporale & Luis Alberiko Gil-Alaña, 2011. "Interest rate dynamics in Kenya," NCID Working Papers 10/2011, Navarra Center for International Development, University of Navarra.
    • Handle: RePEc:nva:unnvaa:wp10-2011
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    File URL: http://ncid.unav.edu/download/file/fid/177
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    File URL: http://onlinelibrary.wiley.com/doi/10.1002/jid.3013/full
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    References listed on IDEAS

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    Cited by:

    1. Donald A. Otieno & Rose W. Ngugi & Nelson H. W. Wawire, 2017. "Effects of Interest Rate on Stock Market Returns in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 40-50, August.

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    More about this item

    Keywords

    Fractional Integration; long-range dependence; interest rates;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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