Abstract: This study investigated the impact of monetary policy on Kenyan economic growth. Monetary policy constitutes both the rules and targets set by the central bank to achieve the ultimate objectives of the economy. However their effectiveness depends on the transmission channels of monetary policy which include interest rate, exchange rate, credit to private sector and money supply (M2). To achieve the objectives of monetary policy geared towards the economic growth which was the economic growth the monetary policy implementation depended on monetary policy frameworks. The study took an explanatory nature in trying to relate the policy reactions functions to monetary transmission channels, by emphasizing their interdependence on the actual conduct of the monetary policy. However even with the implementation of this policy on Kenyan economy, its impact is not fully depicted by the trending results of the Kenyan GDP. The main objective of the study was to find out how transmission of money through monetary policy tools in Kenya related with the performance of the Kenyan economic growth. The study used secondary discrete data for the period of 1991-2012 whose main source is the Central Bank Of Kenya which is the Monetary Authority in the country. A descriptive data analysis was applied so as to take into account the dynamic financial changes that took place in the Kenyan economy of which some of those situations include the financial liberalization that took place in 1991 to the likes of the Kenyan shilling highest depreciation rate against the US Dollar in 2011 among other financial changes. Through a multivariate regression analysis, the trends of the monetary policy transmission channels which included Interest rate depicted by Central Bank Rate (CBR), Exchange Rate (EX), Credit to private Sector (PSC) and Money Supply (M2). The results showed that indeed there was an effect of the independent variables on the dependent variable though whereby Interest rate, exchange rate and credit to private sector depicted a negative effect while Money supply showed a positive effect in the short run. As a result of those variances on the effect of the independent variables on the dependent variable, the researcher recommended some policy recommendations for better long run performance and growth of the Kenyan economy.
Keywords: Real Gross Domestic Product, Economic Growth, Central Bank Rate, Balance of payment, Tools of Monetary Policy, Transmission channels, Monetary policy frameworks and Error Correction Model.
Title: EFFECT OF MONETARY POLICY ON KENYAN ECONOMIC GROWTH
Author: GACHINI, S.K.
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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