Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy

By Elif C Arbatli Saxegaard, Kenji Moriyama

May 1, 2011

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Format: Chicago

Elif C Arbatli Saxegaard, and Kenji Moriyama. Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy, (USA: International Monetary Fund, 2011) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates a small open economy model for Egypt to analyze inflation, output dynamics and monetary policy during 2005-2010. The interest rate channel is found to be relatively weak in Egypt, complicating the use of interest rates as the immediate target of monetary policy. However, the paper also finds a significant level of persistence in the policy rate, making monetary policy pro-cyclical. More active use of interest rate policy, measures to improve domestic debt markets and a gradual move towards inflation targeting can help support a successful disinflation strategy for Egypt.

Subject: Exchange rates, Financial services, Foreign exchange, Inflation, Output gap, Prices, Production, Real exchange rates, Real interest rates

Keywords: Exchange rate, Exchange rates, Global, Inflation, Inflation dynamics, Inflation expectation, Inflation inertia, Interest rate channel, Monetary policy, Open economy, Output gap, Output gap equation, Output gap evolution, Phillips curve, Real exchange rates, Real interest rate, Real interest rates, Small open economy model, Transmission mechanism, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/108
Stock No:

WPIEA2011108
ISBN:

9781455261376
ISSN:

1018-5941

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