Vol. 3, Issue 9, Part C (2017)

Abstract
This study examines the relationship between the copper price and the nominal exchange rate between the Zambian kwacha and the U.S. dollar. For this purpose the study utilized monthly data on copper prices and the kwacha/US dollar exchange rate for the period 2000 to 2014 and controlled for the effects of domestic productivity, inflation and interest rates on government securities in Zambia and the United States. The study applied econometric techniques of cointegration, granger causality, impulse responses and variance decomposition to analyze interrelationships among these variables. The study found that international copper prices, domestic productivity and short term interest rates on government securities have a positive long run impact on the exchange rate between the two currencies. The study further finds that domestic inflation and short term interest rates on Treasury securities in the United States have a negative effect on the exchange rate between the two currencies in the long run. The study also finds short run causality running from the copper price to the Zambian kwacha/US dollar exchange rate but not from the other variables in the model.