ERF 27th Annual Conference
Monetary-Fiscal Policy Interactions During Uncertainty Shocks: Evidence from Egypt
No.
ERF27_100
Publisher
ERF
Date
May, 2021
Topic
C7. Game Theory and Bargaining Theory
H3. Fiscal Policies and Behavior of Economic Agents
E6. Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
D7. Analysis of Collective Decision-Making
In this paper, we offer the above results for an empirical examination in Egypt; a MENA-emerging economy that has been subject to repeated reform attempts starting with the 1990 ERSAP program, through the early 2000s reforms and ending with the on-going IMF-supported reform that initiated in 2016. Egypt has also been subject to several uncertainty shocks and political disruptions; especially in the recent decades following the 2011 revolution and the Arab Spring wave. In Egypt, there appears to be a continued setup of either fiscal dominance or a centralized authority within which both fiscal and monetary policies are coordinated by a single authority. Under both setups, usually growth and financing gaps are prioritized above fiscal and monetary discipline. There is also to earlier evidence of weak budget institutions and a high reliance on politically-motivated discretionary interventions in Egypt (El-khishin and Zaky 2019). Such apparent setup and evidence are argued to have affected welfare outcomes in Egypt and increased fiscal fragility, particularly during periods of political and economic uncertainty. Fragility in this context involve weakened fiscal performance as well as aggravated inflation rates. Based on the abovementioned game results and the motivation for the Egyptian economy; our examined research questions are: (1) how much have uncertainty shocks adversely affected welfare outcomes in Egypt under the prevalent monetary-fiscal coordination setup? and (2)To what extent did fiscal dominance and discretionary interventions in Egypt result in undesired welfare outcomes in normal times and during uncertainty shocks?
Research Associates
Sarah El Khishin
Associate Professor of Economics, British University in...
Research Associates
Dina Kassab
Assistant Professor, Faculty of Economics and Political...