Impact of exchange rate volatility on inflation rates in Kenya: GARCH model approach

Date
2018
Authors
Maina, Nathaniel Mugambi
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The purpose of this research is to find out the effect of exchange rate volatility on inflation rates in Kenya. The methodology involves the use of generalized autoregressive conditional heteroskedastic (GARCH) approach in modeling exchange rate volatility in Kenya and finding the effect it has on the inflation rate. The research applies both asymmetric and symmetric models that capture most common stylized facts about exchange rate returns such as volatility clustering and leverage effect. The period of focus is between 2005 and 2015 and the empirical results show that there is volatility clustering and that exchange rates have an impact on inflation rates. The study is valuable to the central bank of Kenya, research institutes, commercial banks and investment firms.
Description
A Research project Submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Science in Financial Economics at Strathmore University
Keywords
Exchange rates, inflation, GARCH model, Volatility
Citation