Estimating a Small Open-Economy Model for Egypt: Spillovers, Inflation Dynamics, and Implications for Monetary Policy

Elif Arbatli Saxegaard and Kenji Moriyama

No 2011/108, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates a small open economy model for Egypt to analyze inflation, output dynamics and monetary policy during 2005-2010. The interest rate channel is found to be relatively weak in Egypt, complicating the use of interest rates as the immediate target of monetary policy. However, the paper also finds a significant level of persistence in the policy rate, making monetary policy pro-cyclical. More active use of interest rate policy, measures to improve domestic debt markets and a gradual move towards inflation targeting can help support a successful disinflation strategy for Egypt.

Keywords: WP; exchange rate; real interest rate; Small open economy model; monetary policy; transmission mechanism; Phillips curve; interest rate channel; output gap evolution; inflation expectation; inflation dynamics; inflation inertia; open economy; output gap equation; Output gap; Real interest rates; Inflation; Exchange rates; Real exchange rates; Global (search for similar items in EconPapers)
Pages: 40
Date: 2011-05-01
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Citations: View citations in EconPapers (5)

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