Are Exchange Rate, Interest Rate, and Price level Pass-through to Stock Prices in Egypt Symmetric or Asymmetric?

Heba E. Helmy

Article history:
Received: 29 June, 2023
Accepted: 09 February, 2024


This paper employs linear (ARDL) and nonlinear (NARDL) models to examine the short-run and long-run relationships between stock prices on one hand and each of the exchange rate, the interest rate and the price level in Egypt. Employing monthly time series variables from January 2000 until June 2022, the paper concludes that the exchange rate has a clear asymmetric impact on stock prices both in the short and long run. In the short run, the depreciation of the Egyptian currency (LE) has a very strong instantaneous impact in raising stock prices, in addition to a significant effect in raising stock prices in the long run. The opposite impacts do not materialize in the case of the appreciation of the LE. Results also revealed that there is a significant negative relation between the interest rate and stock prices in the short run, and between the inflation rate and stock prices in the long run. As the devaluation of the LE (which positively affects stock prices) was always a main cause behind inflation (which negatively affects stock prices), policymakers should consider, before devaluing the LE, the net cumulative effects of both variables on stock prices in the long run, especially since the magnitude of the negative impact of inflation exceedingly outweighs the positive impact of the devaluation on stock prices.

Exchange rate, Interest rate, Inflation rate, Stock prices, Asymmetry, NARDL, Egypt

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