An Econometric Approach to the Economic Impact of Petroleum Oil Price Fluctuation in Kenya

Abstract

Oil prices in Kenya have been fluctuating over time hence raising the question as to its impact on the economic performance, this paper examines the economic impact of oil prices in Kenya on an econometric perspective. In carrying out the analysis a Vector Auto Regressive (VAR) Model was estimated, as a standard behavior with time series Data stationarity test was carried out followed by the determination of the short run as well as the Long run Dynamics of the model following co-integration analysis, before the estimation of the VAR model. The study found out that oil price fluctuation has a negative significant impact on the economic performance in Kenya. We strongly recommend that the government should adopt appropriate policy measures to manage oil price since despite the fact that they are determined exogenously there is a lot of debate to mismanagement within the sector.

Key words:- Oil prices, Economy, Inflation, co-integration Analysis, VAR Model