Estimating the monetary policy reaction function in Egypt

Elshamy, Hany

doi:10.5937/sjas1202027e

Cited by 3 publications

(8 citation statements)

References 6 publications

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“…62-64). As a result, inflation rates came down due to the implementation of the ERSAP Elshamy (2012), Youssef (2007)]. At the end of the 1996 stabilization program, the CBE was preoccupied with attaining numerous objectives simultaneously, some of which were incompatible.…”

Section: Background Of the Egyptian Economy And Its Monetary Policymentioning

confidence: 99%

“…These goals included achieving significant economic growth while maintaining price stability and a stable exchange rate. The variety of goals considering mounting capital mobility inflows made conducting an autonomous monetary policy nearly tricky, and the measurement of the monetary policy stance throughout that time (1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005) was obscured (Al-Mashat and Billmeier, 2008;Elshamy, 2012).…”

Section: Background Of the Egyptian Economy And Its Monetary Policymentioning

confidence: 99%

“…The CBE liberalized its interest rates on loans and deposits while implementing the ERSAP. It also relied on some instruments to conduct monetary policy, such -Mashat, 2008;Elshamy, 2012;Shokr et al, 2019).…”

Section: Background Of the Egyptian Economy And Its Monetary Policymentioning

confidence: 99%

See 2 more Smart Citations

The Taylor Rule in Egypt: Is it Optimal? Is there Equilibrium Determinacy?

Maher¹,

Zhao²,

Tang³

2022

Journal of Economic Integration

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We investigate Egypt's Taylor rule (interest rate targeting) between 1976 and 2019 by including the main economic variables in its reaction function. Using the Taylor principle, we investigate Egypt’s monetary policy optimality. To this end, we conduct the generalized method of moments (GMM) estimation procedure with different Taylor rule specifications to deal with potential endogeneity among variables. Our GMM estimates reveal that the partial adjustment coefficient is of considerable magnitude, indicating the explanatory power of policy inertia on many total variations in the current values of the nominal interest rate in Egypt. Furthermore, the inflation gap coefficient violates the Taylor principle, making the policy procyclical and inflation "spiral" and inducing divergence from the long-run equilibrium. Therefore, Egypt's Taylor rule, and thus monetary policy, reflects the indeterminacy of equilibrium and is a passive and destabilizing policy. Besides, the output gap coefficient was unexpectedly found to be insignificant.

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Section: Background Of the Egyptian Economy And Its Monetary Policymentioning

confidence: 99%

Section: Background Of the Egyptian Economy And Its Monetary Policymentioning

confidence: 99%

See 1 more Smart Citation

The Taylor Rule in Egypt: Is it Optimal? Is there Equilibrium Determinacy?

Maher¹,

Zhao²,

Tang³

2022

Journal of Economic Integration

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“…The results suggest that the central bank of the DR has been concerned with targeting the exchange rate. Elshamy (2012) and Apanisile and Ajilore (2013) employ co-integration approach in their monetary policy reaction function analyses. Elshamy (2012) estimates the monetary policy reaction function for Egypt using cointegration analysis.…”

Section: Introductionmentioning

confidence: 99%

“…Elshamy (2012) and Apanisile and Ajilore (2013) employ co-integration approach in their monetary policy reaction function analyses. Elshamy (2012) estimates the monetary policy reaction function for Egypt using cointegration analysis. He estimates both the simple Taylor rule and its extension which includes the exchange rate.…”

Section: Introductionmentioning

confidence: 99%

An Empirical Analysis of the Monetary Policy Reaction Function

Nyumuah

2018

IJEF

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Monetary policy decisions usually follow a policy rule which shows a consistent response of policy instruments to variations in inflation and economic growth. The aim of this study is to establish the nature of monetary policy in developing countries through the analysis of policy reaction functions. This study uses macroeconomic data from Ghana, a typical developing country. The study employs the Dynamic Ordinary Least Squares Estimation techniques and finds the central bank to follow a backward-looking Taylor rule. The evidence is that the central bank follows some form of policy rule and focuses more on past inflation relative to current or expected inflation. The results also indicate that the Bank of Ghana has been pursuing inflation targeting monetary policy. The central bank follows an inflation targeting rule allowing for output stabilisation. The exchange rate also plays a role in this stabilization effort.

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Inflation Threshold in the Context of Structural Breaks: Evidence from Egypt Using the Logistic Smooth Transition Regression Approach

Maher

2023

Journal of Economic Integration

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The disparities in structure and nature of developing economies, in terms of their level of development, yield mixed results on the linear/nonlinear relationship between inflation and real GDP (i.e., the inflation threshold), which should be revisited. No study examined the effects of inflation on real GDP in Egypt, particularly after the 2011 revolution and the November 2016 exchange rate floating. This study empirically investigates the inflation threshold in Egypt over the period 1976-2019. In other words, it seeks to determine the optimal level of an inflation rate such that beyond it, inflation becomes a destructive element to economic growth. To this end, the logistic smooth transition regression (LSTR) has been performed. Considering structural breaks, this study checked the stationarity of the variables with the Kapetanios unit root test. Results of the LSTR technique highlight a statistically significant positive relationship between inflation and GDP growth in the lower regime at 9.32%. Beyond this threshold, inflation harms GDP growth, indicating an asymmetric relationship between the two variables. Such a specified estimated inflation threshold could assist monetary authorities in setting their inflation target to be below that threshold. This study recommends that policymakers restrict inflation and keep it below the estimated threshold, considering that inflation in the Egyptian economy is derived from the aggregate supply, demand factors and the production apparatus's inelasticity.

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Estimating the monetary policy reaction function in Egypt

Cited by 3 publications

References 6 publications

The Taylor Rule in Egypt: Is it Optimal? Is there Equilibrium Determinacy?

The Taylor Rule in Egypt: Is it Optimal? Is there Equilibrium Determinacy?

An Empirical Analysis of the Monetary Policy Reaction Function

Inflation Threshold in the Context of Structural Breaks: Evidence from Egypt Using the Logistic Smooth Transition Regression Approach

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