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Volume :36 Issue : 138 2010      Add To Cart                                                                    Download

Procedures and Goals of Monetary Policy in the State of Kuwait

Auther : Dr. Husain A. Al-Omar

     This paper is an attempt to study the impact of discount rate and exchange rate on the stated objectives of monetary policy in Kuwait, which stress the support of domestic interest rate against the development of its international counterpart. It also aims to minimize the impact of imported inflation on is domestic counterpart. For this purpose, a VAR model with monthly data covering the period from 1993 to 2002 is used to asses this effect. The results indicate that the discount rate has a positive impact on domestic short-term interest rate, which its part, has a negative effect on consumer price index. On the other hand, the KD exchange rate against the US Dollar is positively affected by consumer price index indicating that the central bank does not adjust the exchange rate to contain domestic inflation. Thus, it may be argued that the central bank prefers maintaining the stability of the KD exchange rate, especially against the US Dollar, to using the exchange rate as a tool to reduce the impact of imported inflation. Accordingly, it may be argued that the objectives of supporting domestic interest rate and containing inflation are met through discount rate, not through the exchange rate. Nevertheless, it may by argued that the moderate domestic inflation and the accommodation of domestic interest rates to its international counterpart are an indication of the success of the central banks action in achieving its stated objectives.

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May 18, 2017

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