Determining Factors that Influence the Botswanian Pula and Their Respective Significance

Abstract: In this study, the Botswanan currency Pula is analyzed and factors affecting the exchange rate between the Pula and the US Dollar are examined. Using a multiple linear regression analysis and the Cochrane-Orcutt transformation, an explanatory model is developed. Factors are chosen based on economic theory and are evaluated empirically through statistical methods. The final model shows that The Botswana Stock Index, The Real Interest Rate Spread between Botswana and USA, Corruption Index, Business Confidence Index, Diamond Price Index and Unemployment Rate, are relevant and significant in determining changes in the exchange rate. Some factors were significant, but had to be removed from the model due to multicollinearity.