http://41.89.164.27:8080/xmlui/handle/123456789/1838 2026-04-23T14:55:22Z http://41.89.164.27:8080/xmlui/handle/123456789/2623 EFFECT OF MACROECONOMIC VARIABLES ON EXCHANGE RATE VOLATILITY IN KENYA KINUTHIA, JOSEPH NGIGI Foreign direct investment, government expenditure, public debt, inflation rate, interest rates, and money supply are essential macroeconomic variables that can alter currency volatility and its impact on the Kenyan economy. The exchange rate of the Kenyan shilling has exhibited significant volatility against major currencies such as the US dollar. In 2022, the KES depreciated by an average of 0.6% monthly. This trend intensified in early 2023, with average monthly depreciation rates reaching 4%, and some months witnessing increases of up to 6%. By October 2023, the exchange rate reached KES 148.4 per US dollar, up from KES 120.8 in early 2022, marking a 13% depreciation in 2023. In January and February 2024, the KES continued to weaken, exceeding KES 160 and 163.98 per US dollar, respectively. This sharp fluctuation in the Kenyan shilling highlights concerns about currency stability. The objective of this study was to examine the effect of foreign direct investment, government expenditure, public debt, inflation rates, interest rates, and money supply on exchange rate volatility in Kenya. The study was informed by the Purchasing Power Parity Theory, the General Equilibrium Theory of Exchange Rate Determination, the International Fisher Effect theory, and the Interest Rate Parity theory. The study used an explanatory research design, analysing annual secondary data from 1971 to 2024. Data was collected using a structured review matrix and tested for stationarity and cointegration before analysis using descriptive statistics and the ARDL model. Descriptive statistics results showed that the average FDI, government expenditure, and public debt were 0.71, 15.68% and 47.60% respectively. Interest rates, inflation rate, and money supply growth averaged 6.20%, 11.31% and 34.77%, respectively. Inferential results revealed that in the long run, a unit increase in foreign direct investment and government expenditure reduced exchange rate volatility by 36.4% and 341.5%, respectively, while inflation and money supply increased it by 55.2% and 239.7%, respectively. Short-run results showed that a 1% increase in FDI, money supply, and inflation rate increased volatility by 18.31%, 19.26%, and 111.83%, respectively, while government spending and public debt reduced volatility by 90.65% and 42.18%, respectively. To reduce or stabilise exchange rate volatility, the study recommended a combination of monetary policy interventions to policymakers. These included foreign exchange operations, interest rate adjustments, hedging strategies, and export diversification. Additionally, the central bank is advised to regulate the growth of the money supply to prevent excessive inflation and currency depreciation, which could exacerbate exchange rate fluctuations. 2025-01-01T00:00:00Z http://41.89.164.27:8080/xmlui/handle/123456789/2556 MACROECONOMIC EFFECTS OF FINANCIAL DEEPENING BETWEEN 1990 TO 2023 ON ECONOMIC GROWTH IN KENYA MOREKA, MARTHA KERUBO Financial deepening has been found to stimulate economic growth by its capability to mobilize investments, thereby making financial resources readily available and, hence, raising efficiency. However, the reviewed empirical literature on the relationship between financial deepening and economic growth is not very clear in Kenya. The primary objective of the study is to examine the macroeconomic effect of financial deepening on economic growth in Kenya. The specific objectives are to determine the effect of credit to the private sector, stock market capitalization, commercial bank liquidity liabilities, broad money supply, and commercial bank deposits on the growth of the economy in Kenya. The study employed the following theories: the Endogenous Growth theory, the Neoclassical theory, Financial Liberalization Theory, Supply Leading theory. The study employed an explanatory research design and used secondary data from the World Bank and KNBS, with data spanning from 1990 to 2023. The data was subjected to stationarity and cointegration tests to test if the time series has stationary and long-run properties. Autoregressive Distributed Lag (ARDL) model estimation technique was used to achieve the research objectives. The ARDL regression results show that in the long run credit to the private sector 0.41(p-value 0.00<0.05), stock market capitalization 0.04(p-value 0.00<0.05), bank deposit 1.419(p-value 0.00<0.05), liquidity liabilities 0.004(p-value 0.00<0.05), broad money 1.55(p-value 0.00<0.05) and deposit interest rate 0.08(p-value 0.00<0.05) have significant positive effect on economic growth. In contrast, inflation rate -0.08(p-value 0.00<0.05) has a negative impact. In the short run, credit to private sector 0.15(p-value 0.01<0.05), stock market capitalization 0.02(p-value 0.03<0.05), bank deposit 0.84(p-value 0.00<0.05), broad money 0.30(p-value 0.02<0.05) and interest rate 0.03(p-value 0.00<0.05) are positively related to economic growth while inflation rate -0.03(p-value 0.00<0.05) has a negative impact. Liquidity liabilities - 0.0004(p-value 0.15>0.05) is negatively related to economic growth but statistically insignificant in the short run. Further, the results show a relationship between financial deepening and GDP growth in Kenya. Thus, the policymakers should improve the money supply in the economy to stimulate economic growth. This could be achieved through policies encouraging savings and investment and broadening the financial instruments available to the public. Financial institutions should be incentivized to innovate and offer various attractive savings and investment products to different population segments. By doing so, they can mobilize more funds from the public, which can then be channeled into productive investments that drive economic growth. 2025-01-01T00:00:00Z