Is Monetary Policy in Egypt Backward or Forward-Looking? - Economic Research Forum (ERF)

Is Monetary Policy in Egypt Backward or Forward-Looking?

Amr Hosny

October, 2014


17 pages

E5. Monetary Policy, Central Banking, and the Supply of Money and Credit

The objective of this paper is to test whether monetary policy in Egypt has been backward or forward-looking over the 2002M1-2012M12 period. Using different specifications of a simple Taylor rule, we show that the Central Bank of Egypt (CBE) has become more forward-looking, especially after it formally announced the overnight interbank rate as its main monetary policy instrument in 2005M7. Our empirical results also indicate a significant interest rate smoothing effect and suggest that the exchange rate and the Egyptian revolution of 2011M1 have applied upward pressure on short-term interest rates in Egypt. Our findings also suggest that the CBE is successfully managing the transition towards an effective inflation targeting regime.

Research Associates

Amr Hosny

Economist Program, International Monetary Fund (IMF)



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