Assessing the optimal inflation rate for the Kenyan economy

Abstract

This study seeks to estimate the optimal level of inflation for the Kenyan economy that is favorable for its economic growth by using time-series dataset for the period 1981 to 2014. The study adopts a model proposed by Ademola & Aiwo (2006) to examine the existence of threshold level effects in the inflation-growth relationship. The estimated model suggests a 4 percent optimal level of inflation above which inflation retards economic growth.