Exchange Rate and Inflation Dynamics in Zambia

29 Pages Posted: 24 Jul 2017 Last revised: 2 Aug 2019

See all articles by Lionel Roger

Lionel Roger

University of Nottingham, Faculty of Law and Social Sciences, School of Economics, Centre for Research on Economic Development and International Trade (CREDIT), Students

Gregory Smith

World Bank

Oliver Morrissey

University of Nottingham - Development Economics

Lionel Joshua Roger

affiliation not provided to SSRN

Oliver Morrissey

affiliation not provided to SSRN

Date Written: June 28, 2017

Abstract

This paper investigates the dynamics between the exchange rate and consumer price inflation in Zambia. The analysis uses a structural vector autoregression, with quarterly data for 1995-2014 and a combination of short-run sign- and zero-restrictions to identify relevant global and domestic shocks. The findings suggest that the pass-through of exchange rates to consumer prices depends greatly on the shock that originally caused the exchange rate to fluctuate. Although the price of copper is the most important driver of the exchange rate, the fluctuations it caused are associated with a low pass-through of only about 7 percent. Exchange rate fluctuations caused by monetary shocks come with a pass-through of up to 25 percent. Food inflation is equally affected by genuine exchange rate shocks, but appears more reactive to changes in copper prices or the money supply. Historical variance decomposition shows that, across periods, the main drivers of exchange rate fluctuations varied substantially.

Keywords: Primary Metals, Inflation, Macroeconomic Management, Debt Markets, External Debt, Debt Relief and HIPC

Suggested Citation

Roger, Lionel and Smith, Gregory and Morrissey, Oliver and Roger, Lionel Joshua and Morrissey, Oliver, Exchange Rate and Inflation Dynamics in Zambia (June 28, 2017). World Bank Policy Research Working Paper No. 8128, Available at SSRN: https://ssrn.com/abstract=3006202

Lionel Roger (Contact Author)

University of Nottingham, Faculty of Law and Social Sciences, School of Economics, Centre for Research on Economic Development and International Trade (CREDIT), Students ( email )

Nottingham, NG7 2RD
United Kingdom
0044 115 951 5609 (Phone)

HOME PAGE: http://https://www.nottingham.ac.uk/esrc-dtc/people/lionel.roger

Gregory Smith

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Oliver Morrissey

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

Lionel Joshua Roger

affiliation not provided to SSRN

No Address Available

Oliver Morrissey

affiliation not provided to SSRN

No Address Available

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