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Title: Interest rate dynamics in Kenya: Commercial Banks' Rates and the 91-Day Treasury Bill Rate
Authors: Caporale, GM
Gil-Alana, LA
Keywords: Fractional integration;Long-range dependence;Interest rates
Issue Date: 2016
Publisher: Wiely
Citation: Journal of International Development, 28(2): pp. 214 - 232, (2016)
Abstract: This paper analyses the implicit dynamics underlying the interest rate structure in Kenya. For this purpose we use data on four commercial banks’ interest rates (Deposits, Savings, Lending and Overdraft) together with the 91-Day Treasury Bill rate, for the time period July 1991 – August 2010, and apply various techniques based on long-range dependence and, in particular, on fractional integration. The results indicate that all series examined are nonstationary with orders of integration equal to or higher than 1 when using parametric techniques, and slightly smaller than 1 when using semiparametric methods. The analysis of various spreads suggests that Lending – Saving and Deposits – Saving are also nonstationary I(1) variables; however, the spreads vis-à-vis the Treasury Bill rate may be mean reverting if the errors are autocorrelated. The high level of dependence observed in some of these series could be the result of an incorrect interest rate policy, implying the desirability of a policy aimed at reducing interest rate volatility.
ISSN: 0954-1748
Appears in Collections:Dept of Economics and Finance Research Papers

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