Exchange Rate Passthrough to Sectoral Prices: Evidence from Zambia

Abstract

The objective of the study was to examine the exchange rate pass through (ERPT) to sectoral prices in Zambia. We look at the agriculture, manufacturing and services sectors. For analysis, we use the SVAR model with annual data from 1983 to 2017. The results from the study showed that the ERPT is less than complete in the three sectors but highest in the services sector followed by manufacturing and agriculture sectors respectively. High ERPT in the services sector might be because the services sector is dominated by final consumer services such as wholesale and retail trade, transportation and tourism industry which might be sensitive to exchange rate movements. High ERPT in the manufacturing sector could be because most of the raw materials that are used in the manufacturing sector are imported. Lower ERPT in the agriculture sector might suggest that items in this sector are less sensitive to exchange rate movements.

Keywords: ERPT, sectoral price inflation, Forecast error variance decomposition

DOI: 10.7176/JRDM/88-04

Publication date:October 31^st 2022