Article

 

The monetary transmission mechanism in a small open economy: The case of Egypt (p.73-96)

by

Ibrahim L. Awad, Zagazig University, Egypt

Keywords : Monetary Policy in Egypt, VAR Model, Monetary Transmission Mechanism in Egypt

JEL classification : E40, E50, E52

Abstract

By treating the Egyptian economy as a small open economy, the current study attempts to fill a gap in studies about MTMs in the Egyptian economy. The results of the study are as follows: (i) The CBE is factually applying the sterilized intervention policy. (ii) The CBE does not apply an independent monetary policy. (iii) The federal funds rate and the FX rate, respectively, play the most important role among the foreign and domestic variables that influence the reaction of the CBE. (iv) Foreign economic shocks play a dominant role in explaining the behavior of real domestic growth, whereas domestic economic shocks play a dominant role in explaining the behavior of domestic inflation, especially in the short run. (iv) The interest rate channel explains the MTMs in the Egypt.