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Interest rate pass‐through in Kenya

Author

Listed:
  • Roseline N. Misati
  • Esman M. Nyamongo
  • Anne W. Kamau

Abstract

Purpose - This study aims to quantitatively measure the size and speed of monetary policy interest rate transmission to long‐term interest rates in Kenya. Design/methodology/approach - The study uses autoregressive distributed lag specification re‐parameterized as an error correction model and mean adjustment lag methods. Findings - The study finds incomplete pass‐through of policy rates both in the short and the long run. The study also shows that it takes approximately between 11 months to two years for policy interest rate to be fully transmitted to long‐term rates. Originality/value - The study is novel as it is the first attempt the authors are aware of that empirically investigates the interest rate pass‐through in Kenya using high‐frequency data. Measuring the speed and size of interest rate pass‐through provides policy makers with insights on how long it takes for a particular policy action to yield desired results on the real economy. The findings of this study will therefore inform policy makers of the effectiveness of their policy decisions and facilitate timely monetary policy actions.

Suggested Citation

  • Roseline N. Misati & Esman M. Nyamongo & Anne W. Kamau, 2011. "Interest rate pass‐through in Kenya," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 10(2), pages 170-182, July.
    • Handle: RePEc:eme:ijdipp:v:10:y:2011:i:2:p:170-182
    DOI: 10.1108/14468951111149104
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    References listed on IDEAS

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    Cited by:

    1. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Lucas Kamau Njoroge & Sheila Kaminchia, 2012. "Feasibility of inflation targeting in an emerging market: evidence from Kenya," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 4(2), pages 146-159, May.
    2. Peter Wamalwa, 2018. "Optimal Monetary Policy with Output and Asset Price Volatility in an Open Economy: Evidence from Kenya," Working Papers 734, Economic Research Southern Africa.
    3. John Bosco Nnyanzi, 2018. "The Interaction Effect of Financial Innovation and the Transmission Channels on Money Demand in Uganda," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(12), pages 1-1, December.
    4. Nderitu Kingori, 2016. "Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 1(2), pages 81-113, December.
    5. Were, Maureen & Nyamongo, Esman & Kamau, Anne W. & Sichei, Moses M. & Wambua, Joseph, 2014. "Assessing the effectiveness of monetary policy in Kenya: Evidence from a macroeconomic model," Economic Modelling, Elsevier, vol. 37(C), pages 193-201.

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