TITLE:
The Effects of Fiscal Policy Shocks on Aggregate Demand and Economic Growth in Kenya: A VAR Analysis
AUTHORS:
Obed Kipkemboi Tiony, Yingkai Yin
KEYWORDS:
Fiscal Policy, Macroeconomics, Vector Autoregression (VAR), Economic Growth, Financial Stability
JOURNAL NAME:
Modern Economy,
Vol.14 No.8,
August
22,
2023
ABSTRACT: The current study examines the association amongst fiscal policy and
macroeconomic variables using a Vector Autoregression (VAR) approach. The
researcher aims to examine the dynamic paraphernalia of fiscal policy shocks on
real GDP growth and interest rates, as well as to provide insights into the
transmission mechanisms and policy implications. The analysis is based on a
comprehensive dataset comprising key fiscal policy indicators, tax revenue,
government expenditure, real interest rates, and real GDP growth for Kenya from
1998 to 2023. The VAR model is estimated, and robustness of results was
assessed through various tests. The findings reveal that increases in
government expenditure and tax revenue positively impact economic growth, while
fiscal policy variables also influence interest rate dynamics. These results
have important implications for policymakers in designing effective fiscal and
monetary policies to stimulate economic growth and maintain financial
stability. The current research contributes to the existing literature on
fiscal policy and macroeconomic dynamics and suggests potential avenues for
future research.