Abstract
Purpose – The purpose of this paper is to investigate the effectiveness of asset price channel in monetary policy transmission and the effect of stock market volatility on monetary policy in Kenya.Design/methodology/approach – Empirical analysis is based on quantitative analysis which incorporates both descriptive analysis and empirical approach. The study specifically uses the VAR approach which is most appropriate for this kind of study involving analysis of policy shocks on macroeconomic variables.Findings – The main findings of this paper are as follows: first, the evidence of the existence of the asset price channel of monetary policy transmission is mixed in Kenya. Second, while the effect of monetary policy on stock price volatility is not significant, stock market volatility creates instability in monetary policy variables, implying that information from the stock market may be important in predicting the business cycle.Originality/value – The paper provides useful policy insights to academicians,...
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