Monetary Policy Implementation and Volatility Transmission along the Yield Curve: The Case of Kenya

Author/Editor:

Emre Alper ; R. Armando Morales ; Fan Yang

Publication Date:

June 20, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g., T-bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward-looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand, and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forward-looking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short-term yields significantly by smoothing out the overnight interest rates around the policy rate.

Series:

Working Paper No. 2016/120

Subject:

Banking Central bank policy rate Financial institutions Financial services Interbank rates Monetary policy Monetary policy frameworks Treasury bills and bonds Yield curve

English

Publication Date:

June 20, 2016

ISBN/ISSN:

9781498313377/1018-5941

Stock No:

WPIEA2016120

Pages:

29

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