Real Exchange Rate Volatility in Kenya

Abstract

This paper examines Real Exchange Rate (RER) volatility in Kenya by using Generalized Autoregressive Condition of Heteroscedasticity (GARCH) and computation of the unconditional standard deviation of the changes for the period of 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. Thus, 204 data values were analysed, which assisted in evaluating the extent of the trade Kenya had with different countries and used in the construction of the Real Exchange Rate (RER). 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 reflect negative effect on economic growth of Kenya.