Monetary policy and macroeconomic responses: non-recursive SVAR study of Egypt

Abstract

Purpose

This paper aims to examine the effects of monetary policy and foreign shocks on output, inflation and exchange rate in Egypt.

Design/methodology/approach

This paper studies the effects of monetary policy and foreign shocks on output, inflation and exchange rate by using non-recursive SVAR model and quarterly data.

Findings

First, the empirical results reveal that monetary policy shocks, through changes in interest rate or money supply, have a significant effect on output, inflation and exchange rate in Egypt. Second, the world oil prices and foreign output have significant impacts on output, inflation and exchange rate in Egypt, while foreign interest rate has a significant effect on domestic output and inflation.

Research limitations/implications

The limitation of the study is examining one country only.

Practical implications

The Central Bank of Egypt (CBE) should adjust interest rate to stabilize inflation, output and exchange rate. By stabilizing inflation, output and exchange rate, the CBE would be able to achieve the ultimate targets of monetary policy, namely, price stability and economic growth.

Social implications

It is important for the CBE because it shows the significant effect of monetary policy on macroeconomic variables in Egypt. Also, it is important for people because it shows the important role for the CBE.

Originality/value

It is important for the CBE because it examines the effect of monetary policy and foreign shocks on macroeconomic variables.

Citation

Shokr, M.A., Abdul Karim, Z. and Zaidi, M.A.S. (2019), "Monetary policy and macroeconomic responses: non-recursive SVAR study of Egypt", Journal of Financial Economic Policy, Vol. 11 No. 3, pp. 319-337. https://doi.org/10.1108/JFEP-07-2018-0103