Effect of Selected Macroeconomic Variables on Budget Deficit in Kenya

Macroeconomic stability has been a concern to many economies as it shows the economic health of nation. Kenya had unsustainable and persistent fiscal deficit which phenomenal in recent past despite several reforms being established an attempt stabilizing economy. The study was informed by increase budget amidst stagnation macroeconomic instability. This therefore led establish effect selected variables on Kenya. specific objectives were determine interest rates; exchange rate; inflation money supply sought evaluate significant order formulate policy consideration problem. guided Keynesian main theory study. Mundell-Fleming Ricardian Equivalence theories also employed addition back up methodology based explanatory design for time series data covering 30 years from 1991 2020. Autoregressive distributed lag error correction model (ARDL) estimation adopted analyze infer results CUSUM test indicated that stable coefficient reliable. Diagnostic showed there no autocorrelation (p=0.1510>2.062), heteroscedasticity (p=0.0903>21.47), multicollinearity (vif=1.34). Shapiro wilk normality normally distributed. ADF unit root co-integration confirmed long run relationship. findings were: rate positive ( β_1=0.0404, <0.05); β_2=0.4189, negative insignificant β_3=-0.001, >0.05). Money Budget β_4=0.00004, ARDL long-run Adjusted R2=0.4666 impact F-statistics 135.5802. concluded run. Increasing rates economy ends driving upwards same true when variable is rate. recommend need government ensure variables. because link between A strive reduce would mean adjustment suit purpose. These adjustments may include reducing reduction end deficit.