Exchange Rate and Inflation Dynamics in Zambia
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-restriction...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/393871498656454681/Exchange-rate-and-inflation-dynamics-in-Zambia http://hdl.handle.net/10986/27631 |
| Summary: | 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. |
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