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Asymmetric Impact of Real Effective Exchange Rate Changes on Domestic Output Revisited: Evidence from Egypt

Author

Listed:
  • Sharaf, Mesbah

    (University of Alberta, Department of Economics)

  • Shahen, Abdelhalem

    (Alexandria University)

Abstract

The Egyptian pound has undergone substantial devaluations over the past five years. The Central Bank of Egypt aimed through these currency devaluations to stimulate domestic output. In this paper, we investigate the asymmetric impact of the real effective exchange rate (REER) on Egypt's real domestic output from 1960 to 2020 using a Nonlinear Autoregressive Distributed Lag (NARDL) model. The analyses account for the various channels via which the REER would affect domestic output. Results show evidence of a long-run asymmetry in the output effect of REER changes in which only real currency depreciations have a contractionary impact on output, while the REER has no impact on output in the short run. The Egyptian monetary authority cannot rely on domestic currency depreciation as a policy instrument to boost domestic output.

Suggested Citation

  • Sharaf, Mesbah & Shahen, Abdelhalem, 2022. "Asymmetric Impact of Real Effective Exchange Rate Changes on Domestic Output Revisited: Evidence from Egypt," Working Papers 2022-6, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2022_006
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    More about this item

    Keywords

    Asymmetric effects; Domestic output; Egypt; ARDL; Real effective exchange rate;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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