dc.description.abstract | Volatility of foreign exchange rate (FX) is unsolved gap in research, FX and other
macroeconomic variables have significant influence on the Kenyan economic growth. The
study sought to determine the association between selected macro-economic variables and
FX in Kenya. Among key theories reviewed in this study included Interest Rate Parity,
Purchasing Power Parity and Ricardian theories. This paper adopted use of a correlational
research design and collected secondary data based on quarterly data for sixteen years
between 2006 and 2021. Data was collected from the World Bank Development indicators
and the Central Bank of Kenya. The study used both descriptive and inferential statistical
analysis. Dialogistic tests of normality, heteroscedasticity, multicollinearity and serial
correlation were done. The outcomes depict a negative effect of interest rate on FX. Further,
inflation rate had a positive but insignificant effect while GDP growth rate had a negative
insignificant effect on FX. Money supply on the other hand had a positive effect on FX. The
study concluded that interest rate has a negative effect on FX in Kenya. It also concluded that
money supply has a positive effect on FX in Kenya. Inflation rate and GDP growth rate have
no substantial effect on FX in Kenya. The recommendations include the development of
policies by the state that would increase the lending rate; increase the GDP growth rate
optimally; and reduce money supply within the country hence reducing the rate at which the
Kenya Shilling exchanges with USD. The government policies that would increase lending
rate in Kenya, would lead to decreased FX of KSh to USD. The government should also
come up with policies that would increase GDP growth rate optimally; and reduce money
supply within the country hence reducing rate at which Kenya Shilling exchanges with USD.
From the research, future studies could be done on different timespans; and other
macroeconomic variables influencing Kenyan FX against USD and different measures of FX. | en_US |