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Inflation and economic growth in Kenya: An empirical examination

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  • Saungweme, Talknice
  • Odhiambo, Nicholas M

Abstract

This paper examines the relationship between inflation and economic growth in Kenya froman analytical and empirical standpoint. The paper applies the autoregressive distributed lag(ARDL) bounds testing approach and the multivariate Granger-causality test using time seriesdata covering 1970-2019. Structural breaks in the time series were also conducted using thePerron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporatingstructural breaks into time series increases statistical inference's overall validity. Inflation andeconomic growth in Kenya were found to have structural breaks in 1995 and 1991. These yearsare marked by Kenya's economic, financial, public sector and institutional reforms. The otherfindings of the study revealed that inflation has a statistically significant negative influence onlong-term economic growth. The multivariate Granger-causality results showed a distinctshort-run unidirectional causality from economic growth to inflation in Kenya. In order tomitigate the negative consequences of inflation and the coronavirus on the economy andwelfare, the study recommends that Kenya's government should pursue prudent monetary,financial, and fiscal policies

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  • Saungweme, Talknice & Odhiambo, Nicholas M, 2021. "Inflation and economic growth in Kenya: An empirical examination," Working Papers 28344, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:28344
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    More about this item

    Keywords

    inflation; economic growth; ARDL; Granger-causality; Kenya;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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