Commodity Prices and Monetary Dynamics in Zambia

Nundo Chilima ()
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Nundo Chilima: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic

No 2026/11, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper examines how external commodity shocks, exchange rate depreciation, and monetary policy shocks shape macroeconomic adjustment in Zambia. Using monthly data from 2010 to 2024, the analysis applies sign-restricted local projections to trace the responses of output, inflation, exchange rates, policy rates, and lending conditions. The copper-to-oil ratio serves as the baseline indicator of Zambia’s external commodity position because it captures copper export-price gains relative to oil import costs. Robustness checks use separate copper-price and oil-price systems, a longer signrestriction window, state-dependent specifications, and Bayesian VAR evidence. The results show that favorable copper-to-oil shocks lower inflation, ease lending conditions, support kwacha appreciation, and gradually raise output. Exchange-rate depreciation shocks generate persistent inflationary effects, confirming strong exchange-rate passthrough in Zambia´s import-dependent economy. Monetary-policy shocks reduce output and affect financial conditions, but do not produce a clean disinflationary response in the linear baseline, indicating constrained transmission and price-puzzle dynamics. State-dependent results show that transmission varies across inflation and commodity regimes, with weak commodity conditions amplifying inflationary and exchange-rate stress. The findings imply that stabilization in Zambia requires stronger external buffers, credible monetary-fiscal coordination, deeper financial intermediation, and reduced exposure to imported cost shocks.

Keywords: Commodity prices; Copper-to-oil ratio; Exchange-rate pass-through; Monetary policy; Sign-restricted local projections; State dependence; Zambia (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 F41 Q43 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2026-06, Revised 2026-06
New Economics Papers: this item is included in nep-min and nep-mon
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