THE EFFECT OF PUBLIC DEBT ON FOREIGN EXCHANGE RATES VOLATILITY: EVIDENCE OF KENYA


Ann W. Mwaniki
,
Abstract

The study sought to find out the effect of domestic public debt, foreign public debt and foreign exchange reserves on the local currency exchange rate volatility (USD/KES) from 2007 to 2017. The domestic public debt and foreign public debt are negatively related to foreign exchange volatility, while foreign exchange reserve has a positive impact on foreign exchange volatility. The variables are statistically significant on determining the volatility of USD/KES and there is also a long run relation between the variables. The policy makers should model a mix of the two sources of debt, to help achieve the monetary policy objective of price stability.  They also need to keenly evaluate terms of the foreign public debt, come up with strategies for fiscal deficit reduction as well as bear fruits on the fight against corruption. There is need to carry out further studies on the utilization of borrowed public funds and its impact on the wellbeing of the economy.

KEY WORDS: Foreign public debt, Domestic public debt, and Foreign exchange rate volatility

Keywords:
Journal Name :
EPRA International Journal of Economic and Business Review(JEBR)

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Vol : 7
Issue : 5
Month : May
Year : 2019
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