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The Mechanisms of Stagflation in Egypt: The Arab Spring Five Years Later

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  • Ibrahim L. Awad
  • Ashraf Galal Eid

Abstract

This study addresses the economic performance of the Egyptian economy during the periods before and after the 25th January upheaval in 2011. It analyses, in particular, the extent to which monetary and fiscal policies contribute to the phenomenon of stagflation in Egypt after 2011. The study adopts Gordon’s (1977 & 1985) model in specifying the relationship between inflation, unemployment, and real GDP growth. SVAR model has been employed to determine the factors behind stagflation in Egypt. The results suggest that macroeconomic performance does not significantly change during the periods before and after the 2011 and stagflation occurs in Egypt through the following mechanisms; (i) the existence of excess demand in the commodity market in conjunction with the existence of structural unemployment in the labour market. (ii) An existing mutual relationship between inflation and unemployment where both inflation and unemployment feed each other through the wage-price spiral and the elevation of the cost of production triggered by domestic currency depreciations. (iii) The subordination of monetary policy to fiscal policy which is in line with the fiscal dominance hypothesis and crowding out effect. (iv) Expected higher rates of inflation, through the expectations channel, shifting Phillips curve upwards.

Suggested Citation

  • Ibrahim L. Awad & Ashraf Galal Eid, 2017. "The Mechanisms of Stagflation in Egypt: The Arab Spring Five Years Later," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 129-145.
    • Handle: RePEc:bas:econst:y:2017:i:4:p:129-145
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    References listed on IDEAS

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    1. Robert J. Gordon, 1985. "Understanding Inflation in the 1980s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 263-302.
    2. I L Awad & A M Soliman, 2016. "The stability of the demand for money function in Islamic and non-Islamic monetary policy regimes," Economic Issues Journal Articles, Economic Issues, vol. 21(1), pages 67-85, March.
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    4. Gordon, Robert J, 1977. "The Theory of Domestic Inflation," American Economic Review, American Economic Association, vol. 67(1), pages 128-134, February.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    6. Ibrahim AWAD, 2013. "Challenges For Adopting Inflation Targeting Regime In Egypt," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 11, pages 59-81, June.
    7. Yellen, Janet L, 1980. "On Keynesian Economics and the Economics of the Post-Keynesians," American Economic Review, American Economic Association, vol. 70(2), pages 15-25, May.
    8. Ibrahim L. Awad, 2008. "Towards measurement of political pressure on central banks: the case of the central bank of egypt," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(3), pages 254-275.
    9. Tarshis, L, 1980. "Post-Keynesian Economics: A Promise That Bounced?," American Economic Review, American Economic Association, vol. 70(2), pages 10-14, May.
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    Cited by:

    1. Ibrahim L. Awad, 2019. "Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(1), pages 59-78, June.
    2. Ibrahim L. Awad, 2019. "Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(1), pages 59-77, June.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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