Rational Economic Decisions and the Current Account in Kenya
This book models the responses of both the government and the private sector to external shocks and to each other's responses, and derives their effects on the current account of the balance of payments of Kenya. Its model represents a theoretical and econometric application of the rational, optimizing neoclassical analysis to developing economies, with appropriate modifications for the Kenyan context. The modified neoclassical analysis proves to be valid to a considerable extent for the Kenyan context and for the general context of developing countries. Among the major findings of this book are that both the government and the private sector in Kenya are responsive to exogenous shocks and the assumption of a rigid structure of the economy is not valid. The private sector further reacts to the governmental policy responses to the external shocks. The government in setting its policies must not ignore these reactions for they will dilute the intended results of the policies.
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The review of the literature
The general theoretical framework
The theoretical model and econometric estimation
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actual values analysis analyze approach assumed assumption balance of payments base to actual base values chapter coefficient coffee boom Computable General Equilibrium constraints consumer consumption function Conway critical value current account deficits demand functions derived determined devaluation developing countries developing economies domestic value added econometric elasticity of substitution empirical equilibrium exchange rate policy exogenous shocks exports external shocks factor foreign exchange framework Gº Gº Gº government policy variables government's gross output growth hypothesis implies imported inputs increase inflation instrumental variables interest rate Kenya Kenyan economy labour maximization neoclassical nontraded º º parameters Pºl policy responses price of capital price of imported private investment private sector behaviour production rational expectations real exchange rate real wages regression relative price specification Stackleberg statistically significant stock in period structural adjustment studies terms of trade theoretical theory unexpected components utility function World Bank