Exchange Rate Volatility and Trade Outcome: The Impact of Exchange Rate Volatility on Zambia's Trade Outcome (1991 To 2022)

Abstract

The purpose of this research dissertation is to investigate the impact of exchange rate volatility on Zambia's trade outcome from 1991 to 2022. The study delves into the intricate relationships between economic variables and trade dynamics, with a focus on understanding how fluctuations in exchange rates influence the country's trade outcomes. The study was guided by the following objectives: to examine the effect of Inflation Rate on Trade outcome, to investigate the impact that Government expenditure has on the Trade outcome and analyse the effect of interest rates on Zambia's trade outcome. The study uses a descriptive research methodology and a quantitative research approach to evaluate time series data from 1991 to 2022 that were obtained from reputable organisations including the Ministry of Finance, Zambia Revenue Authority, Bank of Zambia, and Zambia Statistics Agency. For a thorough analysis of the data, E-Views was used, which included a model definition based on a theoretical framework. The findings of the study revealed nuanced relationships between economic variables and Zambia's trade outcome. Notable results included the substantial impact of the second lag of government expenditure on the trade outcome in the short run. Additionally, interest rates exhibited varying influences across different timeframes, and inflation rates demonstrated a multifaceted relationship influenced by temporal dynamics. The significance of lagged values of the exchange rate was emphasized, underlining the importance of recent changes in shaping trade dynamics in Zambia. Based on the findings, policymakers are advised to consider strategic increases in government spending aligned with economic goals. Tailored strategies for interest rate policies, acknowledgment of the multifaceted impact of inflation rates, and a focus on implementing measures for exchange rate stability are recommended. These recommendations aim to guide policymakers in fostering enhanced trade outcomes for Zambia. Key words: Trade, balance, exchange, inflation, rate, interest, and government