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Asymmetric Impact of Interest Rate on Economic Growth in Kenya

Author

Listed:
  • Talknice Saungweme

    (Department of Economics, University of South Africa, South Africa)

  • Glenda Maluleke

    (Department of Economics, University of South Africa, South Africa)

  • Nicholas M Odhiambo

    (Department of Economics, University of South Africa, South Africa)

Abstract

Purpose: This study re-examines the relationship between interest rates and economic growth, focusing on the asymmetric effects of lending interest rates on Kenya's economic performance. Design/Methodology/Approach: The study applied the nonlinear autoregressive distributed lag (NARDL) model to ascertain the distinct impacts of positive and negative interest rate shocks on economic growth in both the short and long run. It uses yearly time series data spanning the years 1980-2021. Findings: The results of the cointegration tests found evidence supporting the existence of an asymmetric long-run relationship, while the Wald test results show that there is a long-run and short-run asymmetry link between interest rates and economic growth in Kenya. On average, positive changes in lending interest rates have no significant impact on economic growth in Kenya, both in the short and long run. However, negative interest rate shocks spur economic growth in the short run but impede growth in the long run. Research Limitations/Implication: The study is limited to the Kenyan context and the dataset range of 1980–2021. Future research could explore thresholds for optimal interest rate levels and include a broader range of countries for comparative analysis. Originality/Value: This study uniquely applies the NARDL framework to Kenya, providing new insights into the asymmetric impact of interest rates on economic growth. Paper Type: Research Paper.

Suggested Citation

  • Talknice Saungweme & Glenda Maluleke & Nicholas M Odhiambo, 2025. "Asymmetric Impact of Interest Rate on Economic Growth in Kenya," Finance, Accounting and Business Analysis, University of National and World Economy, Institute for Economics and Politics, vol. 7(1), pages 69-81, June.
    • Handle: RePEc:aan:journl:v:7:y:2025:i:1:p:69-81
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    More about this item

    Keywords

    Economic growth; interest rates; Kenya; NARDL.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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