Assessing the impact of oil prices on exchange rate dynamics in the Kenyan economy

Abstract

This paper aims to investigate the role of murban adnoc oil import prices in explaining the dynamics of exchange rates in the Kenyan economy. The study uses monthly data covering the period 2005 to 2014. The Johansen Co-integration technique will be used to determine long run relationships of variables in the study.The vector autoregressive model is then used to analyse the regression by allowing the value of exchange rates to depend on more than just its own lags but also lags of lending interest rates and extemal reserves. The findings from this study show that in the Kenyan economy, murban adnoc oil import prices do not have a significant impact on exchange rates. Therefore, exchange rate stability could still be achieved even with fluctuating murban adnoc oil import prices in Kenya.