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Interest rate setting in Egypt: a NARDL approach for estimating backward-looking monetary policy reaction function

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  • Hebatalla Atef Emam

Abstract

The role of inflation versus output and exchange rate in designing monetary policy in Egypt has been subject to considerable debate in literature, even after the proclamation of price stability as the monetary policy objective in 2004 and the adoption of flexible exchange rate system in 2016. This study aims to investigate the main drivers of interest rate setting in Egypt throughout the period from 2005 to 2019. In this context, both an ARDL and NARDL econometric techniques are employed to estimate the backward-looking augmented Taylor monetary policy reaction function. The estimated equation estimates policy rate as a function in lagged inflation, lagged output gap, lagged policy rate, change in real effective exchange rate, in addition to other variables. The importance of this study arises from the lack of recent studies assessing interest rate setting in Egypt. The study concludes that monetary policy in Egypt has been accommodative to inflation and that Central Bank of Egypt responds asymmetrically to shocks in inflation, output and exchange rate.

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  • Hebatalla Atef Emam, 2021. "Interest rate setting in Egypt: a NARDL approach for estimating backward-looking monetary policy reaction function," Applied Economics, Taylor & Francis Journals, vol. 53(57), pages 6655-6669, December.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:57:p:6655-6669
    DOI: 10.1080/00036846.2021.1948961
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    Cited by:

    1. Hüseyin İçen & Nimet Melis Esenyel İçen & Buğra Polat, 2022. "The Asymmetric Relationship Among Food Prices, the Exchange Rate, and Oil Prices in Turkey," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(37), pages 149-169, December.
    2. Hebatalla Atef Emam, 2024. "Examining Monetary Policy Cyclicality in Egypt during Crisis Time: Global Financial Crisis versus COVID-19 Pandemic," International Journal of Economics and Financial Issues, Econjournals, vol. 14(1), pages 107-116, January.

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