Discussion Paper No. 16 of 2002 on Better Understanding of the Kenyan Economy: Simulation from the KIPPRA-Treasury Macro Model

Abstract

Since the pioneering work of Tinbergen in the late 1930s, the use of macroeconomic models as vital instruments for policy analysis has gained considerable interest. Based on historical behaviour of an economy, an economic model can simulate various effects of different policies. The KIPPRA–Treasury Macro Model (KTMM) is a macroeconomic model of the Kenyan economy that provides medium-term projections of major macroeconomic variables in a consistent framework. More importantly, KTMM plays a vital role as an instrument for policy analysis by way of policy simulations. This paper demonstrates how KTMM can be used for policy analysis and for building different policy scenarios. The paper documents and discusses some of the simulations from KTMM for purposes of understanding more fully the mechanism of the model and more importantly how the economy works.