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Asset prices and monetary policy in Kenya

Author

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  • Roseline Nyakerario Misati
  • Esman Morekwa Nyamongo

Abstract

Purpose - The purpose of this paper is to investigate the effectiveness of asset price channel in monetary policy transmission and the effect of stock market volatility on monetary policy in Kenya. Design/methodology/approach - Empirical analysis is based on quantitative analysis which incorporates both descriptive analysis and empirical approach. The study specifically uses the VAR approach which is most appropriate for this kind of study involving analysis of policy shocks on macroeconomic variables. Findings - The main findings of this paper are as follows: first, the evidence of the existence of the asset price channel of monetary policy transmission is mixed in Kenya. Second, while the effect of monetary policy on stock price volatility is not significant, stock market volatility creates instability in monetary policy variables, implying that information from the stock market may be important in predicting the business cycle. Originality/value - The paper provides useful policy insights to academicians, economists and central bankers who are interested in understanding the financial stability‐monetary policy nexus. This is important considering that most economies are emerging from the effects of the global financial crisis and they are thus enhancing financial stability measures. No such study that the authors are aware of has been conducted using data for Kenya.

Suggested Citation

  • Roseline Nyakerario Misati & Esman Morekwa Nyamongo, 2012. "Asset prices and monetary policy in Kenya," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(4), pages 451-468, August.
    • Handle: RePEc:eme:jespps:v:39:y:2012:i:4:p:451-468
    DOI: 10.1108/01443581211255657
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    Citations

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    Cited by:

    1. Nyamongo, Esman & Ndirangu, Lydia Ndirangu2, 2013. "Financial Innovations and Monetary Policy in Kenya," MPRA Paper 52387, University Library of Munich, Germany.
    2. Tsangyao Chang & Luis Gil-Alana & Goodness C. Aye & Rangan Gupta & Omid Ranjbar, 2016. "Testing for bubbles in the BRICS stock markets," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 43(4), pages 646-660, September.
    3. Ibrahim Ayoade Adekunle & Anthony Emeka Elekeokwuri & Serifat Olukorede Onayemi, 2020. "Stability in Stock Market Prices and Monetary Policy in Nigeria; What Does the Empirics Say?," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 2-13, August.

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