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Uncovering the Financial Effects of the Exchange Rate Regime Transition in Egypt

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  • Karen Davtyan
  • Omar Elkaraksy

Abstract

We evaluate the financial effects of monetary policy over the transition from a fixed to a floating exchange rate regime in Egypt. Using high‐frequency identification, we estimate the impact of monetary policy announcements on financial markets. Currency devaluations lead to significant increases in stock market prices, while changes in the monetary policy interest rate significantly affect treasury yields. Short‐term yields respond significantly primarily to currency devaluations, whereas long‐term yields respond significantly to both the exchange rate and the monetary policy interest rate. These effects are mainly driven by the period when the exchange rate regime was closer to a floating system, which was also characterized by relative political and economic stability. These results highlight how exchange rate and interest rate adjustments can differentially affect financial variables during the exchange rate regime transition.

Suggested Citation

  • Karen Davtyan & Omar Elkaraksy, 2026. "Uncovering the Financial Effects of the Exchange Rate Regime Transition in Egypt," The World Economy, Wiley Blackwell, vol. 49(6), pages 1252-1270, June.
    • Handle: RePEc:bla:worlde:v:49:y:2026:i:6:p:1252-1270
    DOI: 10.1111/twec.70087
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