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The effect of external shocks on macroeconomic performance and monetary policy in a small open economy: evidence from Zambia

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  • Patrick Mumbi Chileshe
  • Keegan Chisha
  • Masauso Ngulube

Abstract

This study investigates the impact of external shocks on domestic macroeconomic variables and monetary policy of a small open economy, Zambia using a structural VAR estimated with quarterly data covering the period Q1 2000 to Q1 2016. Results indicate that monetary policy is pro-cyclical in response to external shocks, while the dominant external shocks are commodity price shocks followed by financial shocks. This implies that external shocks are clear determinants of monetary policy direction in Zambia owing to their effect on key macroeconomic variable. In addition, results from impulse responses indicate that external shocks have significant effects on Zambia's macroeconomic performance. Specifically, commodity price shocks have significant effects on output and exchange rate while financial shocks have significant effects on prices and exchange rate.

Suggested Citation

  • Patrick Mumbi Chileshe & Keegan Chisha & Masauso Ngulube, 2018. "The effect of external shocks on macroeconomic performance and monetary policy in a small open economy: evidence from Zambia," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(1), pages 18-40.
    • Handle: RePEc:ids:ijsuse:v:10:y:2018:i:1:p:18-40
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    Cited by:

    1. Titus Ayobami Ojeyinka & Dauda Olalekan Yinusa, 2023. "External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 132-153, January.
    2. Sedegah Kordzo & Odhiambo Nicholas M., 2021. "A Review of the Impact of External Shocks on Monetary Policy Effectiveness in Non-WAEMU Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 31(3), pages 37-59, September.

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