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Volume :13 Issue : 3 2006
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The Determinants of Interest Rates in Kuwait: An Empirical Investigation
Auther : Mohammed A. Alomar
Reyadh Y. Faras
Khalifa H. Ghali
The objective of this paper is to empirically investigate the determinants of interest rates which represent the main monetary policy tool of the central bank in Kuwait. The aim is to provide a clear understanding of how a reaction function can fit the need of monetary policy in an oil-producing country like Kuwait, where a significant part of inflation is uncontrollable. Both the short- and long-run behavior of interest rates are investigated using the cointegration and Granger-causality methodology. The results show that, money supply, the exchange rate, oil prices, real and financial asset prices, are significant determinants of the interest rate.