INFLATION AND GROWTH IN EGYPT: IS THERE A THRESHOLD EFFECT?

Hala Abou-Ali () and Hanaa Kheir-El-Din ()
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Hala Abou-Ali: Faculty of Economics and Political Science, (FEPS), Cairo University, Giza, Egypt
Hanaa Kheir-El-Din: Egyptian Center for Economic Studies, (ECES) and FEPS, Cairo University, Egypt

Middle East Development Journal (MEDJ), 2009, vol. 01, issue 01, pages 59-78

Abstract: This paper addresses the relationship between inflation and growth in Egypt for the last quarter century. Two distinct sub-periods are observed: somewhat higher and more volatile GDP growth rate is associated with higher inflation prior to 1990/1991; from this year onwards, lower and less volatile growth is associated with significantly lower inflation. It was found that the impact of inflation on GDP growth is not significantly different between the two periods. Testing for non-linear effects of inflation on growth in Egypt, it appears that there is no threshold of inflation, beyond which it is harmful to growth. To the contrary, the findings suggest that inflation at any level negatively impacts economic growth. It is thus beneficial to focus monetary policy towards maintaining price stability.

Keywords: Inflation; economic growth; threshold inflation; Egyptian economy (search for similar items in EconPapers)
Date: 2009

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