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Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy

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  • Elif C Arbatli
  • Kenji Moriyama

Abstract

This paper estimates a small open-economy model for Egypt to analyze inflation, output dynamics and monetary policy during the period 2005-2010. The interest rate channel is found to be relatively weak in Egypt, complicating the use of interest rates as the immediate target of monetary policy. However, the paper also finds a significant level of persistence in the policy rate, making monetary policy pro-cyclical. More active use of interest rate policy is expected to improve domestic debt markets, and a gradual move towards inflation targeting can help support a successful disinflation strategy for Egypt.

Suggested Citation

  • Elif C Arbatli & Kenji Moriyama, 2011. "Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 6-42, November.
    • Handle: RePEc:icf:icfjmo:v:09:y:2011:i:4:p:6-42
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    Cited by:

    1. Javier G. Gómez-Pineda & Dominique Guillaume & Kadir Tanyeri, 2015. "Systemic Risk, Aggregate Demand, and Commodity Prices," Borradores de Economia 13327, Banco de la Republica.
    2. Abouwafia, Hashem E. & Chambers, Marcus J., 2015. "Monetary policy, exchange rates and stock prices in the Middle East region," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 14-28.

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