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The Monetary Transmission Mechanism in Egypt

  • Rania Al Mashat


    (Central Bank of Egypt)

  • Andreas Billmeier


    (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 getting stronger since the introduction of the interest corridor in 2005, which bodes well for adopting inflation targeting over the medium term.

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Paper provided by Economic Research Forum in its series Working Papers with number 411.

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Length: 44 pages
Date of creation: Jun 2008
Date of revision: Jun 2008
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:411
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  1. 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.
  2. 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.
  3. 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.
  4. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
  5. Maurice Obstfeld & Jay Shambaugh & Alan Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," International Finance 0407003, EconWPA.
  6. Peter Montiel, 1990. "The Transmission Mechanism for Monetary Policy in Developing Countries," IMF Working Papers 90/47, International Monetary Fund.
  7. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September.
  8. Balazs Egert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," CESifo Working Paper Series 1739, CESifo Group Munich.
  9. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  10. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-53, May.
  11. Giorgi Bakradze & Andreas Billmeier, 2007. "Inflation Targeting in Georgia: Are We There Yet?," IMF Working Papers 07/193, International Monetary Fund.
  12. 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.
  13. International Monetary Fund, 2007. "Modalities of Moving to Inflation Targeting in Armenia and Georgia," IMF Working Papers 07/133, International Monetary Fund.
  14. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
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