IMF Working Papers

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

By Emre Alper, R. Armando Morales, Fan Yang

June 20, 2016

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Emre Alper, R. Armando Morales, and Fan Yang. Monetary Policy Implementation and Volatility Transmission along the Yield Curve: The Case of Kenya, (USA: International Monetary Fund, 2016) accessed September 20, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Central bank policy rate, Financial institutions, Financial services, Interbank rates, Monetary policy, Monetary policy frameworks, Treasury bills and bonds, Yield curve

Keywords: Africa, Central bank policy rate, Global, Headline inflation, Inflation expectation, Inflation modeling, Inflation objective, Inflation target range, Inflation targeting, Interbank market rate, Interbank rate, Interbank rate corridor, Interbank rate series, Interbank rates, Interest rate volatility, Kenya, Monetary policy Analysis Unit, Monetary policy frameworks, Monetary policy implementation, Money market rate, Overnight market interest rate, Overnight rate, Policy rate change, Rate, Treasury bills and bonds, Volatility transmission, WP, Year inflation expectation, Yield curve

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2016/120

  • Stock No:

    WPIEA2016120

  • ISBN:

    9781498313377

  • ISSN:

    1018-5941

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