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Government Deposits at the Central Bank and Monetary Policy Operations in a Monetary Targeting Framework: A Threshold Autoregressive Model for Kenya

Author

Listed:
  • Moses Muse Sichei
  • Daniel Amanja
  • Samuel Tiriongo

    (Central Bank of Kenya)

Abstract

The study employs a threshold autoregressive (TAR) model to estimate the level of government deposits at the Central Bank of Kenya (CBK), which triggers a regime change in monetary policy operations/liquidity management. The TAR model is applied on daily data during the period November 30, 2005 to August 10, 2010 and it establishes a threshold level of government deposits at CBK as Ksh 46,665 million with a delay parameter of 1 day. The threshold estimate is useful for cash planning and liquidity management by the CBK and the Treasury. Though the study is Kenya-specific, this analysis can be applied in any country in Sub-Saharan Africa where the interbank market is not well developed and government cashflows have significant effect on banking sector liquidity.

Suggested Citation

  • Moses Muse Sichei & Daniel Amanja & Samuel Tiriongo, 2012. "Government Deposits at the Central Bank and Monetary Policy Operations in a Monetary Targeting Framework: A Threshold Autoregressive Model for Kenya," The African Finance Journal, Africagrowth Institute, vol. 14(2), pages 23-42.
    • Handle: RePEc:afj:journl:v:14:y:2012:i:2:p:23-42
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    More about this item

    Keywords

    Threshold autoregressive; government deposits; liquidity management; bootstrapping;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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