📄 Abstract
The relationship between inflation and economic growth remains the most contested topic globally. This study investigated the non-linear relationship between inflation and economic growth in Kenya from 2004 to 2024 with the USD/KES exchange rate as an intervening variable. Theoretically the Keynesian perspective supports mild inflation as promoting growth whereas volatile inflation distorts price, heightens uncertainty, and discourages investment, consistent with neoclassical and endogenous growth theories. Kenya presents a unique macroeconomic context; despite a successful reduction in headline inflation from 7.7% to 4.5% between 2023 and 2024, economic growth slowed to a decade law of 4.7%. Employing a quantitative correlational research design, a multiple linear regression model was used to analyse secondary data on real GDP, inflation, and exchange rates. The regression results yielded an R-squared of 0.2671, indicating that the model explains approximately 26.7 percent of variation in economic growth. The inflation coefficient was positive (ß1 = 0.2767, p = 0.432) while the inflation squared coefficient was negative (ß2 = -0.0162, p = 0.169), providing qualified support for a non-linear relationship consistent with threshold models. The exchange rate coefficient was negative but not statistically significant (ß3 = -0.0169, p = 0.501). the study concludes that while the inflation-growth nexus in Kenya is non-linear, the relationship lacks statistical significance in the current specification. Thus, other structural factors influence growth outcomes. The findings inform monetary policy by emphasising the threshold effects and limitations of inflation-focused policy frameworks.
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📚 How to Cite:
Paul Wangila Sitati, Dr. Yasin Ghabon , EFFECT OF INFLATION ON ECONOMIC GROWTH IN KENYA; FOREIGN EXCHANGE RATE AS THE MODERATING VARIABLE , Volume 13 , Issue 5, May 2026, EPRA International Journal of Economics, Business and Management Studies (EBMS) , DOI: https://doi.org/10.36713/epra27573