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

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.
Publication date: May 2011
ISBN: 9781455261376
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Economics- Macroeconomics , Economics / General , International - Economics , inflation , monetary policy , real interest rate , nominal interest rate , central bank , inflation targeting , inflationary pressures , optimal monetary policy , inflation target , inflation dynamics , real interest rates , monetary fund , monetary policy framework , monetary pol

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