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The Mechanisms of Stagflation in Egypt: The Arab Spring Five Years Later

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  • Ibrahim L. Awad
  • Ashraf Galal Eid

Abstract

This study addresses the economic performance of the Egyptian economy during the periods before and after the 25th January upheaval in 2011. It analyses, in particular, the extent to which monetary and fiscal policies contribute to the phenomenon of stagflation in Egypt after 2011. The study adopts Gordon’s (1977 & 1985) model in specifying the relationship between inflation, unemployment, and real GDP growth. SVAR model has been employed to determine the factors behind stagflation in Egypt. The results suggest that macroeconomic performance does not significantly change during the periods before and after the 2011 and stagflation occurs in Egypt through the following mechanisms; (i) the existence of excess demand in the commodity market in conjunction with the existence of structural unemployment in the labour market. (ii) An existing mutual relationship between inflation and unemployment where both inflation and unemployment feed each other through the wage-price spiral and the elevation of the cost of production triggered by domestic currency depreciations. (iii) The subordination of monetary policy to fiscal policy which is in line with the fiscal dominance hypothesis and crowding out effect. (iv) Expected higher rates of inflation, through the expectations channel, shifting Phillips curve upwards.

Suggested Citation

  • Ibrahim L. Awad & Ashraf Galal Eid, 2017. "The Mechanisms of Stagflation in Egypt: The Arab Spring Five Years Later," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 129-145.
    • Handle: RePEc:bas:econst:y:2017:i:4:p:129-145
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    References listed on IDEAS

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    Cited by:

    1. 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 59-78, June.
    2. 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.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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