ارزیابی اثربخشی سیاست پولی در کنیا: شواهدی از یک مدل اقتصاد کلان

This paper examines the effectiveness of monetary policy in Kenya based on policy simulations from a structural macroeconometric model. The analysis is conducted using the policy rate, i.e. the central bank rate (CBR) and the cash reserve ratio (CRR) with respect to the interest rate and bank lending channels, respectively. The results indicate that whereas a change in the policy rate is effective in influencing short term rates, the long term lending rates respond marginally. Consequently, the transmission to the real economy and the overall impact on inflation is minimal. However, a change in CBR has a comparatively higher impact on inflation while a change in CRR has a relatively larger impact on aggregate demand. Enhancing the effectiveness of the CBR and strengthening of the interest rate channel have the potential of anchoring inflation expectations and boosting the effectiveness of monetary policy in Kenya.

Macroeconomic models are increasingly playing a significant role in modern central banks, particularly in providing insights to the conduct of monetary policy and the dynamics that arise out of the complex interactions between different economic agents in the economy. Models differ in their design depending on the kind of questions and specific issues to be addressed. Of particular interest to central banks is the understanding of monetary policy transmission channels and the impact of monetary policy with respect to the realization of the desired policy objectives. However, despite their significance, the application of economic models in policy analysis in African countries is still relatively low in comparison to the developed and emerging economies. Moreover, most of the empirical evidence on monetary policy transmission mechanisms is generally based on vector autoregression (VAR) models,3 notwithstanding some of the common short comings of the VAR methodology, such as parameter instability and deficiency when judged by structural benchmarks (Rudebusch, 1998). The fact that results depend on the restrictions imposed has also contributed to conflicting empirical evidence in the literature (Ivrendi and Guloglu, 2010). This paper makes a contribution by assessing the effectiveness of monetary policy in Kenya based on policy simulations from a structural macroeconometric model developed by the authors to aid in policy analysis and short term forecasting at the Central Bank of Kenya (CBK). The model provides a comprehensive analysis since it captures the economy in totality, including the direct and indirect feedback effects and interactions across different sectors of the economy. Moreover, the model can be used to evaluate different policy options and alternative scenarios and in the process, also identify weaknesses in structural inter-linkages in the transmission mechanisms. Two key channels of monetary transmission mechanisms are examined, i.e. interest rate and bank lending channels. In conducting monetary policy, these channels are mainly relied on as a means of influencing the desired outcomes, and hence the need to study and understand them. Policy simulations are conducted with respect to the two channels using the Central Bank Rate (CBR) which is the policy rate, and the Cash Reserve Ratio (CRR), respectively. To undertake the simulations, the structure of the economy as modeled in the macro model is held constant. The results show that a change in CBR has an effective impact on the short term rates. The transmission to the long term lending rates is, however, sticky and hence, the ultimate impact on aggregate demand and inflation is minimal. The results further show that a change in CRR, which works through the bank lending channel, has a stronger effect on the aggregate demand while CBR has comparatively higher impact on inflation. Additionally, there are time lags, particularly in the transmission of monetary policy to the real economy via the interest rate channel, and substantive effects are realized after some quarters or almost a year later. Monetary policy interventions should be therefore, timely to allow for adjustments and interactions in the economy. CRR is likely to be more effective particularly where faster results in managing demand-driven inflation are needed. However, given its frequent use and the link with domestic interest rates, CBR has the potential of anchoring inflation expectations and its effectiveness should be therefore, strengthened. The rest of the paper is structured as follows. Section 2 gives an overview of the CBK macroeconometric model including the background and theoretical framework of the model. Section 3 describes the transmission channels of monetary policy while Section 4 presents the results of the simulation analyses. Section 5 concludes.

Although the application of macroeconomic models in analyzing monetary policy issues is increasingly gaining prominence, African countries have lagged behind. The paper examines monetary policy effectiveness in Kenya based on policy simulations from a macroeconometric model. The analysis is based on the interest rate and the bank lending channels using the CBR and CRR as the monetary policy instruments. With respect to the interest rate channel, the results indicate that a shock in CBR is effective in influencing the short term rates such as the interbank rate and TBR. The lending rates also move in the desired direction though the impact is diminished. This has implications on the transmission of monetary policy to the real economy, and hence, the overall impact on real aggregate demand as well as inflation is minimal. Whereas CRR is relatively more effective than CBR in affecting aggregate demand, CBR has comparatively higher impact on inflation. CRR is comparatively more effective in affecting outcomes in real economy as it has a direct impact on the mm which directly affects the amount of money supply in the economy. CRR is likely to be effective where faster or immediate results are needed, especially on the quantity side given its direct impact on liquidity and hence, can be handy in curtailing demand-driven inflation or stimulating aggregate demand. CBR on the other hand has a relatively more direct relationship with the interest rates especially short term rates. However, given the time lag in the transmission of monetary policy to the real sector and ultimately on inflation, monetary policy interventions should be timely to allow for feedback effects, as substantive effects on the real economy are realized after some quarters or a year later. In practice, there situations that require a combination of policy actions, which may involve for instance, use of both CRR and CBR, such that the immediate feedback from CRR is reinforced by the lagged effects of the latten. That notwithstanding, the policy instruments are not best-suited for quick fixes of high inflation episodes caused by supply side constraints such as vagaries of weather that often affect agricultural production and supply, leading to food inflation spikes. Nonetheless, timely monetary policy interventions especially for demand-driven inflationary pressures can rein in imminent cost push inflation triggers such as agitations for wage increases. Given the link between CBR and domestic interest rates, and its role as the central monetary policy rate, the interest rate channel remains one of the avenues for anchoring inflation expectations in Kenya and should thus, be given the due attention. Among other initiatives, efforts to enhance the role and effectiveness of the policy rate and, strengthening of the monetary policy transmission mechanism are bound to bear fruit in enhancing the effectiveness of monetary policy.