Exchange rate pass through to domestic prices in Zambia.
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Date
2023
Authors
Fandamu, Humphrey
Journal Title
Journal ISSN
Volume Title
Publisher
The University of Zambia
Abstract
The major objective of the thesis was to examine the exchange rate pass through to
domestic prices in Zambia. The first specific objective examined the exchange rate
pass through to consumer prices using the SVAR. Results have shown from that
exchange rate passthrough is incomplete and asymmetrical. Results also show that
Kwacha depreciation increases consumer price inflation in Zambia. This means that
exchange rate movements have the capacity of impairing inflation targets in Zambia.
Therefore, to achieve price stability, policy makers should not only focus on monetary
stability but also on the exchange rate stability. The second specific objective examined
the exchange rate pass through to sectoral prices in the agriculture, manufacturing and
services sectors. The findings have shown that the services sector is the most affected
sector by exchange rate movements. This is followed by the manufacturing and
agriculture sectors. This is likely because the services sector is dominated by wholesale
and retail sector, tourism sector and financial services which are sensitive to exchange
rate changes. The manufacturing sector is affected because it heavily depends on
imported inputs. This sends the signal to policy makers to boost our manufacturing
sector and reduce its heavy dependence on imports. Zambia needs to encourage the use
of local inputs to reduce dependence on imported inputs. The government should also
encourage local tourism thereby reducing the impact of external shocks to this sector.
This will reduce the impact of external shocks to the sector. The agriculture sector is
least affected by exchange rate movements. This could mean there is less foreign trade
in the sector. The government needs to encourage foreign trade in the sector. Finally,
the thesis examined the impact of Chinese presence, multilateral and regional
globalisation on the exchange rate pass through in Zambia. Results show that Chinese
presence has a greater effect than regional globalisation on the exchange rate
passthrough to consumer prices. This shows that China has a greater influence on
Zambia. There is need to strengthen China-Zambia trade relations to reduce trade cost
and trade tariffs on goods imported from China. This may have the reducing effect on
the exchange rate pass through to consumer prices and consequently on inflation in
Zambia. There could be need to strengthen and increase regional trade since regional
trade has a lower effect on the exchange rate passthrough to consumer price inflation.
Description
Thesis
Keywords
Exchange rate pass-through--Domestic prices. , Foreign exchange rates--Zambia. , Exchange rates --Zambia.