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Economic Trilemma and Exchange Rate Management in Egypt

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Author Info

  • Kamar Bassem

    (International University of Monaco, Monte-Carlo, Monaco)

  • Bakardzhieva Damyana

    (International University of Monaco)

Abstract

The recent banking and exchange rate crises in Latin America, East Asia, Eastern Europe and Turkey have proved that a fixed exchange rate is unsustainable in the context of growing financial globalization. The other corner solution advocated by the IMF—the free float—makes economies subject to high fluctuations. Therefore, the main question for most emerging market economies, and particularly for Egypt since January 2003, is what kind of managed float to have. This paper presents a single-equation econometric model approach to define the variables that determined the real exchange rate behavior in Egypt during the 1971–99 period as an indicator of the government’s de facto exchange rate policy. The empirical findings confirm that the Egyptian economic policy mix has almost always led to some real exchange rate volatility, which is inconsistent with the fixed exchange rate policy. Therefore, it is believed that the most viable solution for Egypt is the 'managed bands’ regime around a crawling effective equilibrium central parity, with no pre-announced management bands parameters. This choice will allow Egyptian policy-makers to steer the economy out of the numerous regional and international political and economic shocks.

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Bibliographic Info

Article provided by De Gruyter in its journal Review of Middle East Economics and Finance.

Volume (Year): 3 (2005)
Issue (Month): 2 (August)
Pages: 1-24

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Handle: RePEc:bpj:rmeecf:v:3:y:2005:i:2:n:1

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References

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  1. Barry Eichengreen., 1998. "Does Mercosur Need a Single Currency?," Center for International and Development Economics Research (CIDER) Working Papers C98-103, University of California at Berkeley.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. Barry Eichengreen & Carlos Arteta, 2001. "Banking Crises in Emerging Markets: Presumptions and Evidence," Macroeconomics 0012012, EconWPA.
  5. Belkacem Laabas and Imed Limam, . "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
  6. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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Citations

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Cited by:
  1. Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.
  2. Bassem Kamar & Jean-Etienne Carlotti & Russell C. Krueger, 2009. "Establishing Conversion Values for New Currency Unions," IMF Working Papers 09/184, International Monetary Fund.
  3. Ibrahim L. Awad, 2010. "Why Has the Central Bank of Egypt Been Unable to Achieve The Goal of Price Stability Under the Economic Reform Program?," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2010(6), pages 27-48.
  4. Hoda Selim, 2012. "Has Egypt'S Exchange Rate Policy Changed After The Float?," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1250005-1-1.
  5. Ibrahim L. Awad, 2011. "The Impact of Recent Innovations in Monetary Policy on the Monetary Transmission Mechanism in Egypt," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 186-209.

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