Central Banking in Kenya

2021 ◽  
pp. 250-280
Author(s):  
Maureen Were ◽  
Charles Koori ◽  
Julius Bett
Keyword(s):  
Monetary Policy ◽  
Regional Integration ◽  
Financial Stability ◽  
Policy Instruments ◽  
Central Banking ◽  
Global Dynamics ◽  
East African ◽  
Technological Developments ◽  
History Of ◽  
Legislative Amendments

The history of the Central Bank of Kenya (CBK) dates back to the pre-colonial period when the East African Currency Board performed central banking functions before CBK was established in 1966. Over the first 20 years of its formation, the Bank focused on maintaining the external and internal value of the currency and financial stability. Liberalization reforms followed in early 1990s that led to a market-based economy and a shift in conduct of monetary policy from direct to indirect monetary policy instruments. Legislative amendments granted CBK operational independence and set out clear objective of price stability. The legal and regulatory framework has continued to evolve to reflect the changing domestic and global dynamics. Going forward, the future of central banking in Kenya will largely be shaped by the emerging financial and technological developments, regional integration initiatives, and the evolving global dynamics.

The Over-Burdened Central Bank and the Shift Away from Autonomy

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Central Banks ◽  
Central Banking ◽  
Forward Guidance ◽  
Self Assessments ◽  
Crisis Conditions ◽  
Central Bankers ◽  
Influence Behavior

Many central banks took on additional responsibilities. Inadequate self-assessments remain unfinished almost a decade after the crisis erupted. Government-central bank relationships need to be conditioned on whether times are normal versus crisis conditions. Transparency confronts ambiguity when central banks must communicate the outlook and the conditionality of their decisions. Forward guidance was taken too far and ended up being futile. Central bankers simply exhausted their ability to influence behavior through mere words or ambiguous statements. This is a self-inflicted wound for institutions that are seen as overburdened. These forces leave central banking more vulnerable than is commonly acknowledged. Squaring the conventional objectives of monetary policy with the unclear aims of financial stability is difficult. Adequate limitations on the authority of central banks have yet to be thoroughly debated. We are nowhere near resolving the inherent tensions between old and new sets of central bank objectives.

Moderation Before the Storm

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Balance Sheet ◽  
Central Banks ◽  
Central Banking ◽  
Financial Indicators ◽  
Policy Strategy ◽  
Central Bank Communication ◽  
Current State ◽  
Macroeconomic Environment

This chapter provides an overview of the macroeconomic environment since 2000. The era is broken down into three periods: 2000–2006, 2007–2010, and 2011–present. Warnings of an imminent crisis were present before 2007, but generally they were ignored by self-satisfied policymakers. Pre-crisis, inflation control was the once rising and, seemingly, preeminent monetary policy strategy. A review, both pre- and post-GFC, of a wide variety of macroeconomic and financial indicators is included, with discussion of lesser known variables such as proxies for central bank communication and balance sheet indicators. These clearly enable us to identify interventions by central banks while also highlighting areas of continuing concern. In some respects (e.g. concerns about financial stability), everything has changed post-crisis, but in other respects (e.g. monetary policy strategy) fewer changes are apparent. The chapter concludes by arguing that there are reasons to be apprehensive about the current state of monetary policy and central banking.

scholarly journals A new paradigm of modern central banking

2013 ◽  
Vol 2 (2) ◽  
pp. 75-78
Author(s):  
Aleksandra Szunke
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Central Banking ◽  
First Century ◽  
Financial Instability ◽  
New Paradigm ◽  
The Global Financial Crisis

The changes in the modern monetary policy, which took place at the beginning of the twenty-first century, in response to the global financial crisis led to the transformation of the place and the role of central banks. The strategic aim of the central monetary institutions has become preventing financial instability. So far, central banks have defined financial stability as a public good, which took care independently of other monetary purposes (Pyka, 2010). Unconventional monetary policy resulted in changes the global central banking. The aim of the study is to identify a new paradigm of the role and place of the central bank in the financial system and its new responsibilities, aimed at countering financial instability.

scholarly journals MONETARY POLICY IN ADVANCED ECONOMIES DURING THE GLOBAL FINANCIAL CRISIS: LESSONS FOR LITHUANIA

Ekonomika ◽  
2014 ◽  
Vol 93 (1) ◽  
pp. 40-56
Author(s):  
Birutė Visokavičienė
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Empirical Studies ◽  
Policy Instruments ◽  
Policy Tools ◽  
Currency Board ◽  
Advanced Economies ◽  
Maastricht Criteria

Abstract. The main goal of the research is to develop monetary policy tools and measures enabling to achieve macroeconomic goals of integration into the euro area in the immediate future. It is noted that until the introduction of the euro Lithuania does not have a monetary policy and applies the currency board regime pegging the litas invariably to the euro (hard peg regime). Therefore, it is not only difficult but also risky to try to achieve financial and economic stability in accordance with the relevant Maastricht criteria through fiscal policy measures alone. Monetary policy instruments are necessary to achieve price stability and the overall financial stability. Currently, Lithuania should address the problem of balancing the currency board regime and the Maastricht criteria as a macroeconomic objective through monetary policy tools and measures.The analysis of monetary policies of advanced economies and, first of all, of the euro area reveals the main features of transmission of the monetary policy to a real economy, which can contribute to the successful integration into the euro area. A systemic analysis of the monetary policy is based on monetary and economic theories, laws and patterns, scientific literature and empirical studies. The method used is the logical analysis and systemising of academic literature and modelling of the monetary policy. Such a methodological position enables the justification of the influence of the euro and monetary policy on the future development of the national economy.Key words: monetary policy, euro, exchange rate, inflation, indicators

scholarly journals DOES THE PROCYCLICALITY OF CAPITAL REQUIREMENTS AFFECT FINANCIAL STABILITY IN CEMAC?

2020 ◽  
Vol 8 (7) ◽  
pp. 17-37
Author(s):  
Djimoudjiel Djekonbé ◽  
Ningaye Paul ◽  
Nafé Daba
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Policy Instruments ◽  
Factorization Method ◽  
Capital Requirements ◽  
Panel Var ◽  
Regulatory Capital ◽  
Short Term ◽  
Discretionary Monetary Policy

The objective of this article is to analyze the effects of procyclical variations of the capital requirements for risk coverage on financial stability in the CEMAC[1]. In order to achieve this objective, we have specified and estimated a panel VAR model using the structural factorization method on quarterly Central Bank data over the period 2006-2017. Firstly, the results show that procyclical capital adjustments in the CEMAC region lead to short-term financial instability through the contraction of credit to the private sector. Secondly, despite the low level of financial development, the effects maintained by the adjustment of monetary policy instruments in the short term remain significant on price stability. Finally, in the long term, the procyclicality of regulatory capital makes it possible to revive economic activity and guarantee financial stability. These results lead us to recommend the adoption of a more discretionary monetary policy so as to make more procyclical the capital requirement.     [1] Economic Community of Central African States comprising Cameroon, Central African Republic, Chad, Congo, Gabon and Equatorial Guinea.

scholarly journals The transmission mechanism of unconventional monetary policy

2016 ◽  
Vol 7 (1) ◽  
pp. 7 ◽  
Author(s):  
Jakub Janus
Keyword(s):  
Monetary Policy ◽  
Balance Sheet ◽  
Policy Instruments ◽  
Central Banking ◽  
Transmission Mechanism ◽  
Significant Shift ◽  
Unconventional Monetary Policy ◽  
Relative Significance ◽  
Interest Rate Policy ◽  
Economic Agents

The implementation of unconventional (nonstandard) monetary policy instruments by the leading central banks at the wake of the financial and economic crisis was the most significant shift in the practice of central banking in the recent years. Evaluation of their effects is not feasible without a thorough recognition of the transmission mechanism of various balance-sheet policies, such as quantitative easing. The transmission channels of a standard interest-rate policy are based on a group of theories that are relatively coherent and well-documented. On the contrary, identification of similar framework for unconventional measures proved to be a complicated task. The aim of this paper is to extract and evaluate the theoretical efficiency of particular channels of unconventional monetary policy. This goal requires references to at least several, to some extent mutually exclusive, theories. It is also inevitable to draw one’s attention to the relative significance of identified channels, depending on the nature of used unconventional tools, as well as on reactions of financial institutions and other economic agents to undertaken actions. This paper discusses three broad channel of the unconventional policies transmission mechanism: the signaling channel, the liquidity channel, and the portfolio-balance channel.

Monetary Policy Operations of Central Banks in the E7 Economies

2020 ◽  
pp. 65-91
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Crucial Role ◽  
Policy Instruments ◽  
Active Role ◽  
Central Banks ◽  
Central Banking ◽  
Fiscal Policies ◽  
Monetary Policies ◽  
Sustainable Economic Growth

Both monetary and fiscal policies have a crucial role in the financial markets of the countries. In this framework, policies can be used for mainly two different purposes, which are contractionary and expansionary policies. Hence, it can be said that monetary policies play a key role especially for the emerging economies. The main reason is that these are the economies that aim to be a developed economy. In order to reach this objective, they aim to make investment to obtain sustainable economic growth. Similar to this aspect, this chapter aims to identify different monetary policy operations of the central banks. Thus, various monetary policy instruments are explained. After this issue, necessary information is given related to the central banking operations of E7 economies. As a result, it is defined that central banks of these countries play an active role especially during the recession period.

Macroprudential policy – closing the financial stability gap

2017 ◽  
Vol 25 (4) ◽  
pp. 334-359 ◽  
Author(s):  
Stephan Fahr ◽  
John Fell
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Relative Effectiveness ◽  
Policy Instruments ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Content Type ◽  
Macroprudential Policies ◽  
Trade Offs ◽  
System Resilience

Purpose The global financial crisis demonstrated that monetary policy alone cannot ensure both price and financial stability. According to the Tinbergen (1952) rule, there was a gap in the policymakers’ toolkit for safeguarding financial stability, as the number of available policy instruments was insufficient relative to the number of policy objectives. That gap is now being closed through the creation of new macroprudential policy instruments. Both monetary policy and macroprudential policy have the capacity to influence both price and financial stability objectives. This paper develops a framework for determining how best to assign instruments to objectives. Design/methodology/approach Using a simplified New-Keynesian model, the authors examine two sets of policy trade-offs, the first concerning the relative effectiveness of monetary and macroprudential policy instruments in achieving price and financial stability objectives and the second concerning trade-offs between macroprudential policy instruments themselves. Findings This model shows that regardless of whether the objective is to enhance financial system resilience or to moderate the financial cycle, macroprudential policies are more effective than monetary policy. Likewise, monetary policy is more effective than macroprudential policy in achieving price stability. According to the Mundell (1962) principle of effective market classification, this implies that macroprudential policy instruments should be paired with financial stability objectives, and monetary policy instruments should be paired with the price stability objective. The authors also find a trade-off between the two sets of macroprudential policy instruments, which indicates that failure to moderate the financial cycle would require greater financial system resilience. Originality/value The main contribution of the paper is to establish – with the help of a model framework – the relative effectiveness of monetary and macroprudential policies in achieving price and financial stability objectives. By so doing, it provides a rationale for macroprudential policy and it shows how macroprudential policy can unburden monetary policy in leaning against the wind of financial imbalances.

scholarly journals Curtailing unconventional monetary policy: limitations and prospects

2019 ◽  
Vol 2019 (4) ◽  
pp. 68-80
Author(s):  
Nataliia Sheludko
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Global Economy ◽  
Production Capacity ◽  
Policy Instruments ◽  
Developed Countries ◽  
The United States ◽  
Central Banks ◽  
Budget Deficits

The paper considers the monetary policy of leading world central banks that were used to overcome the global financial and economic crisis in 2008–2009. Advanced developed countries managed to overcome this crisis, primarily through monetary mechanisms. For this purpose, a non-traditional monetary policy was invented and applied for the first time. It included the following: quantitative easing with a corresponding rapid growth of central bank liabilities; de facto maintaining a plurality of their objectives, including ensuring financial stability and reducing unemployment; and expanded participation of central banks in financing governments' budget deficits. The measures taken helped to overcome the recession in developed countries and promoted the transition to a trajectory of economic growth. The current practice of monetary policy normalization, initiated in the United States, involves a gradual increase in the key interest rate and a curtailment of central bank balances. However, in many developed countries (EU), the practice of non-traditional monetary policy is still persistent and is an important factor for determining the trends of the global economy. In general, the results of this policy can be evaluated differently, but it is important for Ukraine to conclude on the relevance of monetary policy to stimulate economic development. Global volatility, increasingly determined by trade wars and other forms of protectionism in global economies, poses challenges (primarily in terms of maintaining/enhancing export and production capacity). For the economy of Ukraine, which is vulnerable to external shocks, these factors, combined with internal centres of instability, form a bunch of complicated tasks, in particular in terms of the cessation of further loss of investment potential, which should be addressed rationally by the monetary policy instruments.

Evolution of Central Banking

2021 ◽  
pp. 68-85
Author(s):  
Federica Branca ◽  
Ixart Miquel-Flores ◽  
Francesco Paolo Mongelli
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Exchange Rate Volatility ◽  
Central Banks ◽  
Central Banking ◽  
East African ◽  
Fiscal Discipline ◽  
African Countries ◽  
Policy Frameworks ◽  
Domestic Prices

This chapter provides some observations regarding the evolution of central banking. It is noted that the practice of monetary policy and the scope of central banks have changed over time. The chapter reflects on the path to East African Economic and Monetary Union (EA-EMU). First, how does East Africa stand in terms of economic and financial convergence? Second, what are the milestones of central banking that all central banks of the EA-EMU should master? Third, which monetary lessons could the euro area offer? Fourth, what worked, and has not, in the euro area, what is being fixed? It is noted that East African countries have differences in income per capita, exchange rate volatility, domestic prices, and fiscal discipline. To support sustainable convergence, they should align their monetary policy frameworks and have solid fiscal arrangement.

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