Monetary Policy Implementation and Volatility Transmission along the Yield Curve: The Case of Kenya

C. Emre Alper, Rogelio Morales and Fan Yang

No 2016/120, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g., T-bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward-looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand, and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forward-looking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short-term yields significantly by smoothing out the overnight interest rates around the policy rate.

Keywords: WP; Kenya; rate; Monetary policy implementation; inflation targeting; volatility transmission; interbank rate; overnight rate; headline inflation; inflation objective; money market rate; monetary policy Analysis Unit; interbank rate corridor; inflation target range; interbank market rate; overnight market interest rate; inflation modeling; inflation expectation; Interbank rates; Central bank policy rate; Yield curve; Treasury bills and bonds; Monetary policy frameworks; Africa; Global; interest rate volatility; policy rate change; interbank rate series; year inflation expectation (search for similar items in EconPapers)
Pages: 29
Date: 2016-06-20
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Journal Article: Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya (2017)
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