Effectiveness of monetary policy in controlling inflation in Kenya

Abstract

This study determines the effectiveness of monetary policy in controlling inflation in Kenya. This study employs regression research design. It uses secondary data on inflation, exchange rate, Treasury bill rate, money supply, GDP growth, oil prices and world food prices. According to the study, the coefficient of money supply is positive but statistically insignificant at 5% level in controlling inflation rate in Kenya. The coefficient for GDP is negative and is also statistically insignificant at 5% level. However, the result indicated that nominal exchange rate is the major factor in controlling inflation in Kenya. The study recommended that policy makers should concentrate on nominal exchange rate. Instead of focusing on world food prices, the government should consider measures aimed at increasing food supply. This involves providing credit facilities to farmers, subsidized fertilizers and providing new technologies to farmers to increase food supply