A Dynamic Model of Inflation for Kenya, 1974-1996

36 Pages Posted: 15 Feb 2006

See all articles by Dick Durevall

Dick Durevall

Göteborg University - School of Business, Economics and Law

Njuguna Ndung`u

affiliation not provided to SSRN

Date Written: July 1999

Abstract

This paper analyses the dynamics of inflation in Kenya during 1974-96, a period characterized by external shocks and internal disequilibria. By developing a parsimonious and empirically constant error correction model the paper finds that the exchange rate, foreign prices, and terms of trade have long-run effects on inflation, while the money supply and interest rate only have short-run effects. The dynamics of inflation are also found to be influenced by food supply constraints. Moreover, inertia is important for the period up to 1993, when about 40 percent of current inflation was transmitted to the next quarter. After 1993 inertia drops to about 10 percent.

Keywords: Kenya Inflation Inertia Money demand Food supply Real exchange rate Terms of Trade Cointegration Error Correction Model

JEL Classification: E31 F41 O55

Suggested Citation

Durevall, Dick Johnny and Ndung`u, Njuguna, A Dynamic Model of Inflation for Kenya, 1974-1996 (July 1999). IMF Working Paper, Vol. , pp. 1-36, 1999. Available at SSRN: https://ssrn.com/abstract=880624

Dick Johnny Durevall (Contact Author)

Göteborg University - School of Business, Economics and Law ( email )

Box 605
Goteborg, 40530
Sweden

Njuguna Ndung`u

affiliation not provided to SSRN

No Address Available

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