The Impact of Industrial Production, Exchange Rate and Money Supply on Inflation in Zambia: A Period Ranging from 2000 to 2020

Abstract

Purpose

The purpose of the study was to find out the impact that industrial production has on Zambia’s inflation rate dynamics for the period ranging from 2000 to 2020 on quarterly basis. The study took into consideration the exchange rate and the money supply as the intervening variables.

Research Design and Application

The research design adopted was quantitative due to the fact that the data collected was mainly time series which was analysed using econometrics techniques taking into consideration the stationarity test, degree of correlation and tests for co- integration to measure the association amongst the variable. Analysis made use of the Engel-Granger Error Correctional Model (ECM).

Findings

After identifying and eliminating the presence of unit roots, heteroscedasticity, and autocorrelation using The Augmented Dickey Fuller, Breusch-Pagan-Godfrey and Durbin-Watson diagnostic tests respectively, The ECM revealed that at 5% level of significance industrial production has a negative short run impact on inflation and then in the long run, the relationship is positive but insignificant.

Implication/Originality/ Value

The study contributes to the value addition discussion in Zambia by recommending support for local manufacturing in order to improve the conversion rates of locally produced raw materials into finished products since the local manufacturing sector has greatly been affected by cheap imports from foreign nations.