ERF 26th Annual Conference
Disparities in Cost of Living Changes after a Large-Scale Devaluation: The Case of Egypt 2016
No.
ERF26_277
Publisher
ERF
Date
September, 2020
Topic
C4. Econometric and Statistical Methods
E3. Prices, Business Fluctuations, and Cycles
I3. Welfare, Well-Being, and Poverty
O1. Economic Development
In November 2016 the Egyptian Pound went through a massive devaluation. A jump in prices followed, particularly for traded goods including food, and particularly in Rural Lower, Rural Upper and Urban Lower regions. Using data from the Central Bank of Egypt and the 2008–2015 Household Income, Expenditure and Consumption Surveys, we investigate the pass-through of exchange-rate changes to commodity prices across all regions and, through households’ consumption and substitution patterns, the implications for households’ cost of living and welfare. Predictions of the one-month and six-month impacts of the devaluation are made. Our results show that typically 4% of exchange-rate changes are passed to prices immediately, and cumulatively approximately 9% are passed over the six months after devaluation. Accounting for households’ consumption patterns, we compute fixed-weight Laspeyres price indices and cost-of-living indices to compare the impact of the devaluation to a counterfactual scenario without it. We find that the cost of living of an average household rises by nearly 50%, and its expenditures would have had to rise by twice as much after the devaluation to maintain the 2015 real expenditures. These effects are higher among households in the poorest quintiles in all regions, according to all cost-of-living measures.
Research Fellows
Shireen AlAzzawi
Teaching Professor, Economics Department, Leavey School of...
Authors
Vladimir Hlasny
Economic Affairs Officer, UN Economic and Social...