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Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt

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  2. Economics, Finance, Business & Management
  3. Applied Economics Quarterly
  4. Vol. 68, Issue 1
  5. pp. 1–36

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Elnagger, A., Richter, C. Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt. Applied Economics Quarterly, 68(1), 1-36. https://doi.org/10.3790/aeq.68.1.1
Elnagger, Athar and Richter, Christian "Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt" Applied Economics Quarterly 68.1, 2022, 1-36. https://doi.org/10.3790/aeq.68.1.1
Elnagger, Athar/Richter, Christian (2022): Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt, in: Applied Economics Quarterly, vol. 68, iss. 1, 1-36, [online] https://doi.org/10.3790/aeq.68.1.1
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Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt

Elnagger, Athar | Richter, Christian

Applied Economics Quarterly, Vol. 68 (2022), Iss. 1 : pp. 1–36

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/aeq.68.1.1
Language
English
Pages
36
Keywords

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€ 26.00 (incl. local VAT if applicable)

Author Details

Athar Elnagger, corresponding author. German University in Cairo, Gate 1, New Cairo City, Main Entrance El-Tagamoa El-Khames, Egypt.

Christian Richter, Head of Business School, Professor of Economics, Coventry University in Egypt at the Knowledge Hub, Cairo.

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Abstract

The role of exchange rate pass-through has dominated the recent heated debates over effective monetary policies as well as exchange rate regimes in general equilibrium models. Empirical literature from developed economies has provided evidence that in many cases, the pass-through to prices may be incomplete. These studies report substantial differences between countries. To fill the gap in empirical literature on developing countries, in the present article, we examine exchange rate pass-through in Egypt from 2005 to 2018 using nine endogenous variable vector auto-regressive models (VAR), estimating the degree and the size of exchange rate pass-through to domestic prices. In addition, we use a reduced two-dimensional VAR to estimate once for the relation between inflation (CPI) and money supply (M2) and once for the relation between inflation (CPI) and imports, along with Granger causality tests to investigate causality between two variables. In the last part of the analysis, we investigate the exchange rate pass-through to inflation (CPI) in Egypt before floatation, from December 2005 to October 2016, and in the post-floatation period, from November 2016 to February 2018. The results have important implications for Egypt’s ability to achieve an effective inflation-targeting regime.

Table of Contents

Section Title Page Action Price
Athar Elnagger / Christian Richter: Exchange Rate Pass-Through, Inflation, and Monetary Policy in Egypt 1
Abstract 1
1. Introduction 1
2. Literature Review 3
3. Overview of Exchange Rate, Inflation, and Monetary Policy in Egypt 8
4. Empirical Analysis 11
4.1 Methodology: Vector Auto-Regressive Model (VAR) 11
4.2 Data Description 13
4.3 Empirical Findings for the VAR Model 15
4.4 Variance Decomposition 17
4.5 Monetary Policy and Inflation: Two-Dimensional VAR 18
4.6 Import and Inflation: Two-Dimensional VAR 22
4.7 Real Exchange Rate and Inflation: Two-Dimensional VAR 26
5. Conclusion 33
References 34

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