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Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?

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  • Ibrahim L. Awad

    (Department of Finance and Economics, College of Business and Economics Qatar University, Qatar)

Abstract

This study investigates the question of “Why is the statistical association between exchange rate shocks and domestic inflation in Egypt weak?†The study relies on two econometric models, the SVAR model and the Markov switching regression model, presenting results of statistical analysis showing that the exchange rate pass-through to domestic inflation in Egypt is weak and insignificant over the study’s whole period (2006Q1-2016Q3), but is significant for the sub-periods of 2006Q1-2010Q4 and 2011Q1-2016Q3. We explain the variations of both level and speed of exchange rate pass-through between the sub-periods by two factors: (i) monetary policy intervention to maintain targets for foreign exchange rates and real GDP growth; and (ii) structural change in the time series data resulting from a change in the macroeconomic policies.

Suggested Citation

  • Ibrahim L. Awad, 2019. "Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(1), pages 59-77, June.
    • Handle: RePEc:ijb:journl:v:18:y:2019:i:1:p:59-77
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    References listed on IDEAS

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    Cited by:

    1. Abdul Jalil, 2020. "What Do We Know of Exchange Rate Pass Through?," PIDE Knowledge Brief 2020:5, Pakistan Institute of Development Economics.

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    More about this item

    Keywords

    price stability; exchange rate pass-through; structural VAR model; Markov switching regression model;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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