The Impact of U.S. monetary policy on Kenyan exchange rate volatility: an empirical analysis of KES/USD and KES/UGX dynamics

Abstract

This study examines the impact of U.S. monetary policy on the volatility of the Kenyan Shilling (KES) against the U.S. Dollar (USD) and Ugandan Shilling (UGX) from 2014 to 2024. Using GARCH, EGARCH, and DCC-GARCH models, it identifies significant volatility clustering and asymmetric responses to monetary policy shocks. While U.S. policy announcements show limited influence on short-term volatility, spillover effects highlight dynamic correlations between KES/USD and KES/UGX, reflecting regional transmission of external shocks. The findings provide critical insights for policymakers and market participants, emphasizing adaptive strategies to mitigate external economic risks and contributing to the understanding of exchange rate dynamics in emerging markets.