Document Type

Article

Publication Date

8-2014

Abstract

This paper examines the effect of the developments introduced since 2003 in Egypt on the nature of interaction of monetary and fiscal policies and the achievement of macroeconomic objectives. Utilizing the Structural Vector Autoregression (SVAR) approach, the dynamic interaction of policies and their effects on macroeconomic aggregates are investigated. The findings support the success of the developments in eliminating the fiscal dominance. However, coordination between policies is still weak to achieve the macroeconomic stabilization objectives. The results also prove the conventional Keynesian effect of fiscal policy on real GDP. However, the fiscal multiplier is very small. Likewise, expansionary monetary policy affects real output positively with small magnitude. In addition, monetary policy proves to have an expansionary significant effect on the level of prices in the short-run. Nevertheless, there are signs of improvement in the effect of monetary policy shocks on the inflation rate after the reform. The results also prove the existence of long-run real money demand function.

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