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The Monetary Transmission Mechanism in Egypt

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  • Rania A. Al-Mashat
  • Andreas Billmeier

Abstract

This paper examines the monetary transmission mechanism in Egypt against the background of the central bank''s intention to shift to inflation targeting. It first describes the changing transmission channels over the last decade. Second, the channels are evaluated in a VAR model. The exchange rate channel plays a strong role in propagating monetary shocks to output and prices. Most other channels (bank lending, asset price) are rather weak. The interest rate channel is underdeveloped but appears to be strengthening since the introduction of the interest corridor in 2005, which bodes well for adopting inflation targeting over the medium term.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/285.

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Length: 43
Date of creation: 01 Dec 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/285

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Keywords: Monetary transmission mechanism; Inflation targeting; Exchange rates; monetary policy; inflation; monetary stance; central bank; monetary fund; monetary transmission; foreign exchange; monetary policy framework; aggregate demand; government securities; inflation-targeting; effective exchange rates; monetary shock; money supply; monetary aggregate; discount rate; price level; price stability; liquidity management; foreign currency; open market operations; monetary policies; monetary economics; reserve requirements; official reserves; real money; inflation target; low inflation; real money supply; high inflation; inflation rates; monetary shocks; monetary policy implementation; inflationary expectations; monetary policy instrument; monetary instruments; inflation dynamics; price inflation; gdp deflator; macroeconomic stability; monetary management; monetary policy decisions; monetary policy rules; reserve requirement; real output; money demand; holdings of government securities; independent monetary policy; inflation targeting regime; monetary aggregates; annual inflation; money markets; forecasting inflation; monetary policy strategy; nominal interest rate; contractionary monetary policy;

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  2. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
  3. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
  4. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (the central bank of Hungary).
  5. Peter Montiel, 1990. "The Transmission Mechanism for Monetary Policy in Developing Countries," IMF Working Papers 90/47, International Monetary Fund.
  6. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August.
  7. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  8. Katerina Arnostova & Jaromir Hurnik, 2005. "The Monetary Transmission Mechanism in the Czech Republic (evidence from VAR analysis)," Working Papers 2005/04, Czech National Bank, Research Department.
  9. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  10. Giorgi Bakradze & Andreas Billmeier, 2007. "Inflation Targeting in Georgia," IMF Working Papers 07/193, International Monetary Fund.
  11. Isabella Massa & Andreas Billmeier, 2007. "Go Long or Short in Pyramids? News From the Egyptian Stock Market," IMF Working Papers 07/179, International Monetary Fund.
  12. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June.
  13. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  14. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 07/133, International Monetary Fund.
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Citations

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Cited by:
  1. Durevall, Dick & Loening, Josef L. & Birru, Yohannes A., 2010. "Inflation Dynamics and Food Prices in Ethiopia," Working Papers in Economics 478, University of Gothenburg, Department of Economics, revised 03 Jun 2013.
  2. Mishra, Prachi & Montiel, Peter J & Spilimbergo, Antonio, 2011. "How Effective Is Monetary Transmission in Developing Countries? A Survey of the Empirical Evidence," CEPR Discussion Papers 8577, C.E.P.R. Discussion Papers.
  3. James L. Butkiewicz & Zeliha Ozdogan, 2013. "Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey," Working Papers 13-08, University of Delaware, Department of Economics.
  4. Loening, Josef L. & Durevall, Dick & Birru, Yohannes A., 2009. "Inflation dynamics and food prices in an agricultural economy : the case of Ethiopia," Policy Research Working Paper Series 4969, The World Bank.
  5. Nooman Rebei & Mohamed Safouane Ben Aissa, 2012. "Price Subsidies and the Conduct of Monetary Policy," IMF Working Papers 12/15, International Monetary Fund.
  6. Jiang, Jiadan & Kim, David, 2013. "Exchange rate pass-through to inflation in China," Economic Modelling, Elsevier, vol. 33(C), pages 900-912.
  7. 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.
  8. Deraniyagala, Sonali & Kaluwa, Ben, 2011. "Macroeconomic policy for employment creation: The case of Malawi," MPRA Paper 52715, University Library of Munich, Germany.
  9. Samarina, Anna, 2012. "Monetary targeting and financial system characteristics: An empirical analysis," Research Report 12011-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  10. Ziaei, Sayyed Mahdi, 2009. "Assess The Long Run Effects Of Monetary Policy On Bank lending,Foreign Asset and Liability In MENA Countries," MPRA Paper 14331, University Library of Munich, Germany.
  11. Birendra Bahadur Budha, 2013. "The Bank Lending Channel of Monetary Policy in Nepal: Evidence from Bank Level Data," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(2), pages 43-65, October.
  12. International Monetary Fund, 2010. "The Transmission Mechanism in Armenia," IMF Working Papers 10/270, International Monetary Fund.
  13. repec:nrb:wpaper:nrbwp172013 is not listed on IDEAS
  14. International Monetary Fund, 2010. "Commodity Prices and Inflation in the Middle East, North Africa, and Central Asia," IMF Working Papers 10/135, International Monetary Fund.
  15. Birendra Bahadur Budha, 2013. "The Bank Lending Channel of Monetary Policy of Nepal: Evidence from Bank Level," NRB working Paper 17/2013, Nepal Rastra Bank, Research Department.
  16. International Monetary Fund, 2011. "Estimating a Small Open-Economy Model for Egypt," IMF Working Papers 11/108, International Monetary Fund.
  17. Prachi Mishra & Peter Montiel, 2012. "How Effective is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence," IMF Working Papers 12/143, International Monetary Fund.
  18. Xiong , Qiyue, 2013. "The role of the bank lending channel and impacts of stricter capital requirements on the Chinese banking industry," BOFIT Discussion Papers 7/2013, Bank of Finland, Institute for Economies in Transition.
  19. Sheikh Khurram Fazal & Muhammad Abdus Salam, 2013. "Interest Rate Pass-Through: Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 39-62, Jan-June.
  20. Ibrahim L. Awad, 2010. "The Monetary Targeting Regime in Egypt: Theoretical and Empirical Investigations," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 150-164.

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