Working Papers in Economics
No 40:
Long-run and Short-run Determinants of the Real Exchange Rate in Zambia
Beatrice Kalinda Mkenda
Abstract: The paper analyses the main determinants of the real
exchange rate in Zambia. It first gives a brief review of the Zambian
economy and a review on real exchange rate studies. Then an illustrative
model is presented. The study employs cointegration analysis in estimating
the long-run determinants of the real exchange rates for imports and
exports, and of the internal real exchange rate. The finding is that terms
of trade, government consumption, and investment share all influence the
real exchange rate for imports, while terms of trade, central bank reserves
and trade taxes influence the real exchange rate for exports in the
long-run. The internal real exchange rate is influenced by terms of trade,
investment share, and the rate of growth of real GDP in the long-run.
Error-correction models are then estimated. Besides the difference of the
fundamentals mentioned above, aid and openness are found to impart
short-run effects on the real exchange rate indices. The coefficients of
adjustment are found to be -0.38, -0.79 and -0.80 respectively for the real
exchange rates for imports and exports, and for the internal real exchange
rate.
Keywords: Real Exchange Rate; Misalignment; Cointegration; Zambia; (follow links to similar papers)
JEL-Codes: C32; F31; O55; (follow links to similar papers)
68 pages, April 30, 2001
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