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The Effectiveness Of Open Market Operations In Monetary Policy Implementation: The Case Of Kenya

  • June 7, 2016
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  • Category: Financial Sector Management
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By Godfrey Kampan Putunoi
2015
This paper investigates the effectiveness of open market operations in monetary policy implementation in Kenya. The issue is tested empirically by assessing the impact of a monetary policy shock on output, prices and the nominal effective exchange rate for Kenya using quarterly time series data spanning1997Q4–2014Q1. Relying on techniques commonly used in the vector autoregression (VAR) literature, the main results suggest that an exogenous rise in the Repo rate tends to be followed by a decline in prices and an appreciation in the nominal exchange rate but has insignificant impact on output. The study recommends that for monetary policy to be more effective in Kenya, further market deepening and growth of the financial sector to support monetary policy implementation is necessary.