Is monetary policy in egypt backward or forward-looking ?

Abstract EN

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.