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The Determinants of Inflation in Egypt: An Empirical Study (1991-2012)

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  • El Baz, Osama

Abstract

This paper investigated the determinants of inflation in the Egyptian economy. Using annual data, covering the period (1991-2012), a Vector Auto Regression Model (VAR) was estimated. The results of the empirical model confirmed that inflation rate responds positively in the first period following shocks to itself, domestic liquidity growth rate, output gap, exchange rate depreciation, and world food prices. Also, expectations seemed to play an important role as inflation rate responds positively to a shock in itself in the first year following the shock, which reinforces the idea that inflationary expectations will generate more inflation. In the short run inflation is explained mostly by its own fluctuations followed by output gap, domestic liquidity growth rate, and nominal depreciation of the Egyptian pound against the US dollar, while in a 5-year horizon about 56% of inflation dynamics can be attributed to factors other than inflation expectations "itself".

Suggested Citation

  • El Baz, Osama, 2014. "The Determinants of Inflation in Egypt: An Empirical Study (1991-2012)," MPRA Paper 56978, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56978
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    References listed on IDEAS

    as
    1. El-Sakka M. I. T. & Ghali Khalifa H, 2005. "The Sources of Inflation in Egypt: A Multivariate Co-integration Analysis," Review of Middle East Economics and Finance, De Gruyter, vol. 3(3), pages 84-96, December.
    2. Iris Claus, 2000. "Is the output gap a useful indicator of inflation?," Reserve Bank of New Zealand Discussion Paper Series DP2000/05, Reserve Bank of New Zealand.
    3. Ali, Heba, 2011. "Inflation Dynamics: The Case of Egypt," MPRA Paper 36331, University Library of Munich, Germany.
    4. Amr Sadek HOSNY, 2014. "Is Monetary Policy in Egypt Backward or Forward-Looking?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(2).
    5. Mr. Ludvig Söderling & Mr. Domenico Fanizza, 2006. "Fiscal Determinants of Inflation: A Primer for the Middle East and North Africa," IMF Working Papers 2006/216, International Monetary Fund.
    6. Ms. Dora M Iakova, 2007. "Flattening of the Phillips Curve: Implications for Monetary Policy," IMF Working Papers 2007/076, International Monetary Fund.
    7. James Twaddle & Florin Citu, 2003. "The output gap and its role in monetary policy decision-making," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 66, March.
    8. Mr. Kenji Moriyama, 2011. "Inflation Inertia in Egypt and its Policy Implications," IMF Working Papers 2011/160, International Monetary Fund.
    9. Ms. Sweta Chaman Saxena & Ms. Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap: An Application to Sweden," IMF Working Papers 2000/059, International Monetary Fund.
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    More about this item

    Keywords

    Inflation; Phillips Curve; VAR; IRFs;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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