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

Elif Arbatli () and Kenji Moriyama

The IUP Journal of Monetary Economics, 2011, vol. IX, issue 4, 6-42

Abstract: This paper estimates a small open-economy model for Egypt to analyze inflation, output dynamics and monetary policy during the period 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 is expected to improve domestic debt markets, and a gradual move towards inflation targeting can help support a successful disinflation strategy for Egypt.

Date: 2011
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