Fiscal Policy Reaction Function for Kenya

Abstract

This article investigates how the Kenyan government responds to debt portfolio disturbances by estimating Kenya’s fiscal reaction function. The empirical estimation uses monthly data sets from the seventh month of 2000 (2000:07) to the third month of 2014 (2014:03). The empirical results indicates that, the Kenya government faces difficulties in responding to short term positive debt shocks, given its fiscal policy reaction is contradictory to theory expectation, hence a severe fiscal adjustment may be inevitable in the future.

Keywords: Kenya’s fiscal reaction function, Quantile Regression, ARDL Model