Monetary Policy Transmissions and Balance of Payments Stability in Egypt During the Covide-19 Crisis.

Abstract

The purpose of the paper is to examine the monetary approach to the balance of payments adjustment in Egypt. Specifically, the paper first investigates the impact of monetary policy variables; money supply, discount rate and two other variables exchange rate and income on the balance of payments adjustment during the period 1980-2021. During that period Egypt launched several economic reform programs and was hit by three shocks: the Global Financial Crisis 2007-2008, the Egyp an Uprising 2011, and the Covid-19 pandemic 2020-to the present. The second purpose of the paper is to investigate the impact of Covid-19 outbreak on the Egyptian balance of payments using a dummy variable. The study uses the Autoregression Distributed Lag ARDL Bound test for cointegration introduced by Pesaran, Shin and Smith (2001). The balance of payments is expressed as a function of its lagged values and in the current and lagged values of the explanatory variables. The paper uses the Error Correction model ECM to examine the impact of the monetary policy transmissions on the balance of payments in the long run and in the short run. The Augmented Dickey Fuller test is used to determine the degree of integration.