The determinants of the real exchange rate in Zambia

Abstract

This paper attempts to explain the movements of Zambia's real effective exchange rate using a vector error correction model and quarterly time series data between 1973 and 1997. The study results are similar to most studies about the nature of the determinants of the real exchange rate. Through the use of purchasing power parity tests, impulse response and variance decomposition functions, the study indicates that Zambia's real effective exchange rate depends significantly on the prevailing real fundamentals|| price differentials and real shocks

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