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How does Political Violence Affect Currency Substitution? Evidence from Egypt

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  • David Fielding

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  • Anja Shortland

Abstract

In this paper we estimate a time-series model of the financial asset portfolio shares in Egypt, distinguishing between assets of varying degrees of liquidity and between domestic currency and foreign currency deposits. While financial liberalization and financial stability are found to have encouraged domestic residents to increase the share of their portfolio composed of domestic currency assets, these effects have been offset by an increase in the number of violent political incidents arising from conflict between radical Islamic groups and the Egyptian state. Greater violence has led to lower domestic asset demand and substitution into foreign currency deposits. The link between political events and financial outcomes provides a rationale for economic policy interventions by Bretton Woods institutions in response to increases in political instability.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 02/6.

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Date of creation: Apr 2002
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Handle: RePEc:lec:leecon:02/6

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Related research

Keywords: Egypt; Currency Substitution; Asset Demand; Political Violence; Radical Islamism;

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Cited by:
  1. Anja Shortland, 2004. "The Role of Politics and Institutions in LDC Currency Devaluations," Discussion Papers in Economics 04/30, Department of Economics, University of Leicester.
  2. David Fielding & Anja Shortland, 2005. "Political Violence and Excess Liquidity in Egypt," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 542-557.

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