Determination of the Kenya shilling real exchange rate volatility
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Date
1993-07Author
Maturu, Benjamin Ongwae
Type
ThesisLanguage
enMetadata
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This study focuses on the Kenya Shilling (KSH) real exchange rate volatility over
the period 1980: 1/ 1991:3. The prime objective is to formulate and estimate an
econometric model that could capture the underlying data generation process of the KSH
real exchange rate. An integrated Towe-Onis and Ozmucur . model is formulated and
econometrically estimated using Two Stage Least Squires (2SLS) in the PC-GIVE
computer package. The empirical results thereof lead us to conclude that the KSH real
exchange- rate volatility cannot be ascribed entirely to exchange rate market fundamentals
but also to foreign exchange market psychology. Consequently, we suggest that any
attempt to defend the KSH real exchange rate from undue misalignment entails a policy
mix that should include both indirect and direct remedial policy measures. The empirical
results are also suggestive of the existence of a negative median in the excess rate of
return on three month forward contracts denominated in domestic currency. That could
partly explain observed asset portfolio adjustrnents effected by some international trade
agents; presumably, in their effort to realize sound currency exposure management
Citation
Masters thesis University of Nairobi (1993)Publisher
University of Nairobi Department of Economics