Analyzing Exchange Rate Effects on Trade: Empirical Evidence

Yosri Nasr Ahmed, Mohamad Alnafissa (), Mosatafa M. Negm, Yasmine Mohieeldin Gharieb, Abdullah Algarini and Taghreed Abdel-Aziz Hassouba
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Yosri Nasr Ahmed: Faculty of Agriculture, Cairo University, Cairo 12613, Egypt
Mohamad Alnafissa: Department of Agricultural Economics, King Saud University, Riyadh 11451, Saudi Arabia
Mosatafa M. Negm: Department of Agricultural Economics, Al-Azhar University, Cairo 11754, Egypt
Yasmine Mohieeldin Gharieb: Faculty of Economics and Political Sciences, Cairo University, Cairo 12613, Egypt
Abdullah Algarini: Economics Department, College of Business, Imam Mohammad Ibn Saud Islamic University, Riyadh 11564, Saudi Arabia
Taghreed Abdel-Aziz Hassouba: Faculty of Economics and Political Sciences, Cairo University, Cairo 12613, Egypt

Sustainability, 2024, vol. 16, issue 10, 1-14

Abstract: In this study, we aimed to find a fair exchange rate for Egypt, exploring how exchange rate policies affect the country’s economic growth and food security. We also sought to answer an important question for Egyptian policymakers: “Do current exchange rate policies help reduce Egypt’s trade deficit?”. We used two methods in our research: First, we applied the purchasing power parity (PPP) method to determine the equilibrium real exchange rate (ERER). Then, we combined the computable general equilibrium model (CGE) with the ERER value from the PPP method to observe how different sectors interact with the overall economy and understand how household incomes and poverty levels are related. Our findings showed that the fair exchange rate is EGP 38.5 per US dollar, according to the PPP method. This new exchange rate may significantly impact the Egyptian economy. Some impacts are positive, such as better real GDP, more exports, and fewer imports; however, these are minor and not significant. On the downside, it may lead to higher inflation, increased prices for goods, and reduced consumption. Moreover, this study highlights the importance of having balanced exchange rate policies that consider Egypt’s unique economic situations, and challenges and align with other economic policies. Experience and reality have shown that exchange rates alone are not the only solution.

Keywords: exchange rate; trade; food security; purchasing power parity (PPP); general equilibrium model (CGE) (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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