Do Oil Price Shocks Affect Exchange Rates in Oil-importing Countries: A Case of the Zambian Economy using the SVAR Approach

Oil price shocks have been argued to impact Real Effective Exchange Rates (REERs) in net oil importing countries, mostly through the wealth-transfer effect, which involves transfer of wealth from oil-importers oil-exporters, and Terms Trade Channel. Since this analysis had not done for Zambian case by decomposing shocks, a Structural Vector Autoregressive Model (SVAR) was used measure contemporaneous on REERs, complemented Impulse Response Functions (IRFs), Granger Causality Tests Forecast Error Variance Decomposition (FEVD). The long-run analyzed Correction (VECM) after satisfaction cointegration requirements. findings revealed that decomposed no short-run REERs at 5% level. Similarly, it found combined effect all variables system did granger-cause Zambia’s while FEVD results showed were attributed minute proportion variation REERs. These profile as predominantly copper cobalt exporter, historic exchange rate controls, fuel subsidies, controls. Johansen’s test existence least one cointegrated equation system, so subsequent VECM constructed Zambia, but Term (ECT) measures speed adjustment back equilibrium disturbance, significant.