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The Monetary Transmission Mechanism in Egypt

  • Al-Mashat Rania

    (Central Bank of Egypt)

  • Billmeier Andreas

    (International Monetary Fund)

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

Volume (Year): 4 (2008)
Issue (Month): 3 (September)
Pages: 32-82

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Handle: RePEc:bpj:rmeecf:v:4:y:2008:i:3:n:2
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  1. 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.
  2. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," NBER Working Papers 10396, National Bureau of Economic Research, Inc.
  3. 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.
  4. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  5. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 07/133, International Monetary Fund.
  6. 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.
  7. Giorgi Bakradze & Andreas Billmeier, 2007. "Inflation Targeting in Georgia: Are We There Yet?," IMF Working Papers 07/193, International Monetary Fund.
  8. 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.
  9. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  10. Peter Montiel, 1990. "The Transmission Mechanism for Monetary Policy in Developing Countries," IMF Working Papers 90/47, International Monetary Fund.
  11. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring Monetary Policy," NBER Working Papers 5145, National Bureau of Economic Research, Inc.
  12. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
  13. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers 2006/5, Magyar Nemzeti Bank (Central Bank of Hungary).
  14. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
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