Exchange rate pass-through to domestic consumer prices in Zambia

This study investigated the exchange rate pass-through to domestic consumer prices in Zambia, using quarterly data for the period 1994: q1-2019: q4. To estimate the pass-through of exchange rate changes on domestic consumer prices, a structural vector autoregressive (SVAR) approach was used. The impulse response functions traced the effect of exchange rate shocks on the domestic consumer prices over time. The key findings of the study suggest that the exchange rate pass-through is low and incomplete, but persistent. The pass-through declined and was less persistent between the period 2006: q2-2019: q4, largely attributed to improvements in the macroeconomic environment. Although the exchange rate pass-through is low and incomplete, exchange rate shocks are a potential source of inflation in Zambia based on the variance decomposition results. One policy implication from the study is that the central bank should continue to monitor developments in the exchange rate and take necessary policy measures to dampen excessive depreciation of the Kwacha