Investigating the Effects of Monetary Policy Shocks on Growth and Inflation in Egypt: Asymmetry and the Long-term Impact

Author(s):
Nadeen Omar and Dina Yousri

Article history:
Received: Dec 12, 2022
Accepted: Dec 11, 2023

Abstract:

Egypt is an emerging economy that has been going through a series of monetary reforms since the 1990s. Previous studies examined the effects of monetary policy with the assumption of a symmetric impact on the macroeconomic aggregates. We add to this line of literature with a recent investigation of both the symmetric and asymmetric effects of monetary policy on output and inflation in Egypt. This paper utilized the interest rate as the monetary policy instrument and retrieved quarterly data covering the period from 2007Q3 to 2019Q3. We apply both the linear and non-linear Auto-regressive Distributed Lag (ARDL) model. In addition, the paper employs an F-bounds test for cointegration and derives the dynamic multiplier to visualize the asymmetric effects. Despite a significant long-run impact on both macroeconomic variables, there is evidence for asymmetric effects on inflation, but not on output. We conclude with policy implications reflecting on Egypt’s plans of implementing an inflation-targeting (IT) regime.

Keywords:
Asymmetric policy, cointegration, interest rate, inflation, non-linear ARDL (NARDL), monetary policy


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