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Estimating the monetary policy reaction function in Egypt

The European Journal of Applied Economics - opened book
Author: Hany M. Elshamy

Received: July 03, 2012

Correction: September 08, 2012

Accepted: September 15, 2012




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Keywords: monetary policy reaction function, taylor rule, egypt

Abstract: This paper estimates the Egyptian monetary policy reaction function, by applying the Taylor (1993) rule and its open-economy version which employs co-integration analysis to estimate Taylor’s function in the long run. Also, this analysis is concerned with measuring this function in the short run by employing the Error Correction Mechanism (ECM). The analysis relies on the annual data obtained from the International Financial Statistics (IFS) published by the IMF for the period 1970-2007. When the simple Taylor rule was estimated for Egypt, the output gap and inflation coefficients were statistically significant, and their signs were found to be consistent with theoretical rationale. When the open-economy Taylor rule was estimated, the coefficients of the output gap, inflation and exchange rate had statistical significance with the expected signs. Therefore, the inflation rate has played an important role in conducting the Egyptian monetary policy.

APA format
M. Elshamy, H. (2012). Estimating the monetary policy reaction function in Egypt. Singidunum Journal of Applied Sciences, 9(2), 27-32.


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