Interest Rates and Growth of Private Domestic Investment in Kenya; Vector Autoregressive Econometric Approach

Abstract

This study sought to determine the relationship between short term interest rate, long term interest rate, and private domestic investment in Kenya using time series quarterly data spanning 1997 to 2018. Vector autoregressive model was used to estimate the relationship. The findings show that the central bank rate and lending rate significantly impact private domestic investment. The results emphasize the role of interest rate policy and monetary policy in driving domestic private investment in Kenya. The findings of this study will be of benefit to policy makers through provision of data-based evidence that will be used as a guide while making appropriate policies to encourage growth of private domestic investment in the country leading to economic growth.