Sensitivity to Key Parameters of Short Run Simulation Results of Terms of Trade Shocks in a Kenyan CGE Model

This paper presents results from a CGE model where the twin terms of trade shocks that the Kenyan economy faced in the 1970s have been considered. The paper addresses the question of the robustness of the simulation results from these shocks through sensitivity analysis of key parameters in the model, namely the trade elasticities and the wage indexation parameter. The paper shows that the extent to which Kenya as a primary commodity exporting country suffers from the 'Dutch disease' depends to an extent on the responsiveness of its primary exports to relative price changes in the export supply function. The higher the levels of elasticities of transformation the more pronounced is the extent of the 'Dutch disease' phenomenon resulting from a booming agricultural sector. Moreover, the simulation results of the terms of trade shock were found to be extremely robust with regard to different values of Armington elasticities. Lastly, the paper shows the importance of a wage indexation parameter that closely reflects the institutional arrangements under which wages are formed. a parameter that fixes money wages resulted in expansionary and less inflationary external shock. These results significantly differ from the outcome of the external shocks in case the real wages are fixed instead

Measuring Potential Output and Output Gap and Macroeconomic Policy: The Case of Kenya

Measuring the level of an economy.s potential output and output gap are essential in identifying a sustainable non-inflationary growth and assessing appropriate macroeconomic policies. The estimation of potential output helps to determine the pace of sustainable growth while output gap estimates provide a key benchmark against which to assess inflationary or disinflationary pressures suggesting when to tighten or ease monetary policies. These measures also help to provide a gauge in the determining the structural fiscal position of the government. This paper attempts to measure Kenya.s potential output and output gap using alternative statistical techniques and structural methods. Estimation of potential output and output gap using these techniques shows varied results. The estimated potential output growth using different methods gave a range of .2.9 to 2.4 percent for 2000 and a range of .0.8 to 4.6 for 2001. Although various methods produce varied results, they however provided a broad consensus on the over-all trend and performance of the Kenyan economy. This study found that firstly, potential output growth is declining over the recent time and secondly, the Kenyan economy is contracting in the recent years.

Measuring Potential Output and Output Gap and Macroeconomic Policy: The Case of Kenya

Measuring the level of an economy.s potential output and output gap are essential in identifying a sustainable non-inflationary growth and assessing appropriate macroeconomic policies. The estimation of potential output helps to determine the pace of sustainable growth while output gap estimates provide a key benchmark against which to assess inflationary or disinflationary pressures suggesting when to tighten or ease monetary policies. These measures also help to provide a gauge in the determining the structural fiscal position of the government. This paper attempts to measure Kenya.s potential output and output gap using alternative statistical techniques and structural methods. Estimation of potential output and output gap using these techniques shows varied results. The estimated potential output growth using different methods gave a range of .2.9 to 2.4 percent for 2000 and a range of .0.8 to 4.6 for 2001. Although various methods produce varied results, they however provided a broad consensus on the over-all trend and performance of the Kenyan economy. This study found that firstly, potential output growth is declining over the recent time and secondly, the Kenyan economy is contracting in the recent years

Growth, productivity and diversification in Africa

Export diversification, Growth, African economies, F1, O1, O4, C2,

Excise Tax Changes and Their Impact on Gadam Sorghum Demand in Kenya

Gadam sorghum has in the recent past been promoted by various operators through a Public-Private-Partnership. Taking advantage of this, the largest brewing establishment in Kenya developed a beverage targeted for the low-end market in an effort to stem the problems associated with illicit alcoholic beverages while giving farmers a reliable income source. With its promotion, a number of farmers have devoted effort at availing grain to via contract, for the purposes of brewing. However, excise tax changes are destined to impact this arrangement by altering the conditions for different players along this particular chain. Using ARIMA time series modelling, we analyse the imposition of two tax changes—a reduction of tax in 2006 and an increase of tax in 2013—on the demand for the product and therefore demand for Gadam sorghum grain. Data is represented by Results show a relatively large change in demand occasioned by tax increases. The paper argues that the further encouragement of sorghum growing will undoubtedly cushion farmers from climate change impacts while it’s processing can boost manufacturing to meet the targets stated in Vision 2030 while offering farmers a consistent income source