A study of the macro economic factors affecting the value of the Zambian Kwacha

This study was aimed at determining the influence of macroeconomic factors on foreign currency exchange rate fluctuations and the value of the Zambian Kwacha. Macroeconomic factors include inflation rates, interest rates, Gross Domestic Product growth rate (GDP) and Balance of Payments which constituted independent variables whilst the dependent variable in the study was the value of the Kwacha against the United States Dollar ($). Secondary data representing annual average covering the period 1993 to 2018 was extracted from various Bank of Zambia and Central Statistical Office reports for the study. The study used regression model, E.Views software version 22 to analyse the data set. The study established that, based on the error correction model, R-squared was 0.6 meaning that 36% of variations in the performance of the kwacha against the US dollar is caused by the four independent variables in the developed model. The results also showed that interest rates and Gross Domestic Product growth rate were negatively related to the performance of the kwacha, while inflation and Balance of Payment rates were positively related to the value of the kwacha at 0.05% level of significance. However, the response of the kwacha with respect to all independent variables was not very responsive as all the variables were inelastic. In addition, the F.Test based on the ANOVA showed that there was no significance between the dependent variable and independent variables. The study, therefore, recommends that both contractionary monetary policy and expansionary fiscal policy can greatly improve the performance of the kwacha against the US dollar in times of economic recession