A dynamic model of inflation of Kenya, 1974-96

D Durevall and Ndung'u Ns

Journal of African Economies, 2001, vol. 10, issue 1, 92-125

Abstract: This paper analyses the dynamics of inflation in Kenya between 1974 and 1996, a period characterised by eternal shocks and internal disequilibria. By developing a parsimonious and empirically constant model, we find that the exchange rate, foreign prices and terms of trade have long-run effects on inflation, while money supply and interest rate only have short-run effects. Inertia is found to be important up until 1993, when about 40% of the current inflation was carried over to the next quarter. After 1993, inertia drops to about 10%. Moreover, inflation is also influenced by changes in maize-grain prices, indicating a non-negligible role for agricultural supply constraints in the inflation process.

Date: 2001
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