Are Structural VARs with Long-Run Restrictions Useful for Developing Monetary Policy Strategy in Egypt?

Ahmed Hachicha () and Cheng Few Lee
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Ahmed Hachicha: Faculty of Management and Economics Sciences, 4 Airport Road, 3018 Sfax, Tunisia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 03, 509-527

Abstract: On the basis of SVAR models of monetary policy in Egypt for the period December 1976–May 2006, our paper explores a new empirical assessment for the interest rate channel in correcting trouble in the Egyptian economy by imposing contemporaneous and long run restrictions. It appears that after a monetary policy expansion, output is stable in the first period, rises temporarily reaching the baseline att = 40, and the global monetary aggregate rises but not significantly. In addition, the price level rises with great difficulties in response to a negative interest rate shock to the global liquidity aggregate. The excess of money supply has a transitory effect on the Egyptian output but it causes inflation pressures.SVAR Blanchard and Quah (1989) estimation reveals contradictory results to the previous findings. Last but certainly not least, this means that the effect of bank lending and the interest rate channels on the economy are limited in time.The paper shows that the transmission of monetary policy through the interest rate channel has become weak in the short run but more important in the long run. Nonetheless, the bank lending channel through the commercial bank lending is not a potent monetary transmission mechanism.

Keywords: Monetary policy; bank lending channel; interest rate channel; Egyptian economy; SVAR models; contemporaneous restrictions; long run restrictions (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091509001721

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