Effect of Open Market Operations on Income Inequality

Inequality is particularly relevant for public debates on the disaggregate implications of economic policies since they might have distinct effects across different segments of the population. Impact of monetary easing on inequality have recently attracted increasing attention especially in developing countries. This article examined the effect of open market operations on income inequality in Kenya. A quantitative research design method was adopted. The study utilized a quantitative cross-sectional data from the Kenya Continuous Household Survey Programme (KCHSP) for the years 2020 and 2021. Stepwise regression, forward selection model was executed with a threshold of 0.2. Further, the study was supported by Permanent Income Hypothesis, Kuznets Hypothesis and the modernization theory. Income inequality, measured by the Gini coefficient, was the dependent variable. Open market operations (repo, and reverse repo) was the independent variable in the model. The male headed households had a Gini coefficient of 0.58 while a Gini coefficient of 0.59 was attributed to female headed households, across the 47 counties. The results showed that open market operations (reverse repo) had a coefficient of 0.022, p=0.026< 0.05 which was positive and statistically significant at 5% level. The findings indicate that in order to effectively manage income inequality in the country, policymakers should adopt an interdisciplinary and multifaceted approach. This approach should take into account the differential impacts of various policy instruments on income distribution, with a particular focus on demographic segmentation. Additionally, policymakers should combine careful adjustments to monetary policy with targeted social and fiscal measures. These measures should be continuously informed by rigorous data analysis, with the aim of fostering a more inclusive and equitable economy.