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Government Deposits at the Central Bank and Monetary Policy Operations in a Monetary Targeting Framework: A Threshold Autoregressive Model for Kenya

Moses Muse Sichei, Daniel Amanja and Samuel Tiriongo ()
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Samuel Tiriongo: Central Bank of Kenya

The African Finance Journal, 2012, vol. 14, issue 2, 23-42

Abstract: The study employs a threshold autoregressive (TAR) model to estimate the level of government deposits at the Central Bank of Kenya (CBK), which triggers a regime change in monetary policy operations/liquidity management. The TAR model is applied on daily data during the period November 30, 2005 to August 10, 2010 and it establishes a threshold level of government deposits at CBK as Ksh 46,665 million with a delay parameter of 1 day. The threshold estimate is useful for cash planning and liquidity management by the CBK and the Treasury. Though the study is Kenya-specific, this analysis can be applied in any country in Sub-Saharan Africa where the interbank market is not well developed and government cashflows have significant effect on banking sector liquidity.

Keywords: Threshold autoregressive; government deposits; liquidity management; bootstrapping (search for similar items in EconPapers)
JEL-codes: E47 E52 E58 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:afj:journl:v:14:y:2012:i:2:p:23-42