The impact of real exchange rate volatility on economic growth: Kenyan evidence

Abstract

This paper examines the impact of real exchange rate volatility on economic growth in Kenyan. The study employed the Generalized Autoregressive Condition of Heteroscedasticity (GARCH) and computation of the unconditional standard deviation of the changes to measure volatility and Generalized Method Moments (GMM) to assess the impact of the real exchange rate volatility on economic growth for the period January 1993 to December 2009. Data for the study was collected from Kenya National Bureau of Statistics, Central Bank of Kenya and International Monetary Fund Data Base by taking monthly frequency. The study found that RER was very volatility for the entire study period. Kenya’s RER generally exhibited a appreciating and volatility trend, implying that in general, the country’s international competitiveness deteriorated over the study period. The RER Volatility reflected a negative impact on economic growth of Kenya.