Monetarism Theory and Liquidity Decisions of Business Enterprises in Kenya

Abstract

In order to comprehend how monetary elements and Kenya's financial environment interact, this research investigates the application of monetarism theory to liquidity decisions for enterprises in Kenya. Milton Friedman's monetary theory places a strong emphasis on how the amount of money in circulation affects how the economy performs. Understanding the use of monetarism theory becomes essential in the Kenyan context, as the Central Bank of Kenya plays a key role in enacting monetary policy. The study assesses the effect of monetary policy instruments, including interest rate changes and open market operations, on liquidity decisions and looks at the relationship between changes in the money supply and firm-level liquidity positions. In the context of monetarism theory, it also looks at how macroeconomic variables like inflation rates, currency fluctuations, and economic growth affect firm-level liquidity decisions. This study attempts to add to the body of knowledge on the connection between monetary conditions and firm-level liquidity decisions by applying monetarism theory to the Kenyan setting. The results can help Kenyan policymakers make decisions that are supported by facts and that will promote financial stability, effective liquidity management, and long-term economic growth.