| dc.description.abstract | ABSTRACT
Increased economic growth is a key objective that the Kenyan government strives to
achieve in order to reap its welfare benefits. To achieve this, the government of Kenya
incorporated the economic pillar in its Vision 2030 which aimed at realizing an
annual economic growth rate of 10% by the year 2030. To date, this rate is yet to be
achieved and the current economic growth of Kenya remains far below it. Prompted
by this, this study set out to investigate whether fiscal and monetary strategies
influence Kenyan economic growth and consequently determine which policy is
more effective between the two in stimulating the growth of output in Kenya. To
achieve the specified objectives, the study used a causal research design to train a
Structural Vector Autoregressive model of order three (SVAR (3)) with time series
data collected from the first quarter of 2006 through the fourth quarter of 2019.To
ensure the model results were robust and reliable, a series of residual diagnostic tests
including stationarity, normality, Granger causality, model stability and
autocorrelation were performed. The diagnostic results showed that the estimated
model was sound and robust for making inferences. The study findings revealed that
both strategies had substantial stimulative influence on Kenya’s economic growth
rate. Specifically, considering the effect of fiscal plan on Kenya’s economic growth
rate, the analysis revealed that positive shocks on tax revenue decreased economic
growth significantly for two quarters while a positive shock on debt increased
economic growth significantly for two quarters after which the impact decayed to
zero. A positive shock on government expenditure was observed to produce
inconsequential influence on output growth. Turning to monetary policy, the study
found that a positive innovation on the central bank rate and the nominal effective
exchange rate, decreased growth significantly for three quarters after which the effect
becomes positive and their impact dies overtime. On the other hand, an observation
of insignificant effect on growth stimulation was noted when a positive innovation
on money supply was introduced. Guided by the results of the comparative analysis
on which policy was more potent than the other, fiscal strategy was noted to be more
stimulative relative to the monetary policy. As such, this study advocates for the
application of expansionary fiscal measures to spur growth in Kenya. | en_US |
