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Economic Trilemma and Exchange Rate Management in Egypt

Author

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  • 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.

Suggested Citation

  • Kamar Bassem & Bakardzhieva Damyana, 2005. "Economic Trilemma and Exchange Rate Management in Egypt," Review of Middle East Economics and Finance, De Gruyter, vol. 3(2), pages 1-24, August.
  • Handle: RePEc:bpj:rmeecf:v:3:y:2005:i:2:n:1
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    References listed on IDEAS

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    1. Barry Eichengreen, 1998. "Does Mercosur Need a Single Currency," NBER Working Papers 6821, National Bureau of Economic Research, Inc.
    2. Belkacem Laabas and Imed Limam, "undated". "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
    3. Bassem Kamar & Damyana Bakardzhieva, 2002. "The Reforms Needed to Attract More FDI in Egypt: Lessons from the CEEC Experience," Working Papers 0240, Economic Research Forum, revised 26 Dec 2002.
    4. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    5. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    6. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Citations

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    Cited by:

    1. Bassem M Kamar & Jean-Etienne Carlotti & Russell C Krueger, 2009. "Establishing Conversion Values for New Currency Unions; Method and Application to the planned Gulf Cooperation Council (GCC) Currency Union," IMF Working Papers 09/184, International Monetary Fund.
    2. Al-Mashat Rania & Billmeier Andreas, 2008. "The Monetary Transmission Mechanism in Egypt," Review of Middle East Economics and Finance, De Gruyter, vol. 4(3), pages 32-82, September.
    3. Hoda SELIM, "undated". "Has Egypt's Monetary Policy Changed after the Float?," EcoMod2010 259600152, EcoMod.
    4. 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.
    5. Damyana Bakardzhieva & Russell Krueger & Bassem Kamar & Jean-Etienne Carlotti, 2011. "Essay on Establishing Conversion Values for the Planned Gulf Cooperation Council (GCC) Currency Union," Working Papers 632, Economic Research Forum, revised 09 Jan 2011.
    6. Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.
    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. repec:bla:intfin:v:20:y:2017:i:2:p:135-154 is not listed on IDEAS

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