Baqir, R., 2002, “The Channels on Monetary Policy Transmission in Thailand,” in: Thailand—Selected Issues, IMF Staff Country Report 02/195 (Washington: International Monetary Fund).
Al-Mashat, R. and A. Billmeier, 2007, “The Monetary Transmission Mechanism in Egypt,” forthcoming as IMF Working Paper (Washington: International Monetary Fund).
Billmeier, A. and I. Massa, 2007a, “Go Long or Short In Pyramids—News from the Egyptian Stock Market,” IMF Working Paper No. 07/179 (Washington: International Monetary Fund).
Billmeier, A. and I. Massa,, “What Drives Stock Market Development in the Middle East and Central Asia—Institutions, Remittances, or Natural Resources?” IMF Working Paper No. 07/157 (Washington: International Monetary Fund).
Moursi, T. A., M. E. Mossallamy, and E. Zakareya , 2007, “Effect of Some Recent Changes in Egyptian Monetary Policy: Measurement and Evaluation,” ECES Working Paper No. 122 (Cairo: Egyptian Center for Economic Studies).
Rabanal, P., 2005, “Exchange Rate Pass-Through” in: Arab Republic of Egypt: Selected Issues, IMF Staff Country Report 05/179 (Washington: International Monetary Fund)
Prepared by Andreas Billmeier (MCD). This chapter is based on the forthcoming IMF working paper by Al-Mashat and Billmeier of the same title (henceforth AMB) which includes a more detailed description of the historical record.)
Of course, central banks can also intervene directly on the foreign currency market to steer the exchange rate in a specific direction.)
Between March 2003 and February 2006, the CASE 30 index increased to about 12-fold [12-fold needs an object]; see Billmeier and Massa (2007a) for a more thorough investigation of recent developments on the Egyptian stock market. Billmeier and Massa (2007b) investigate to what extent remittances, the quality of institutions, and hydrocarbon wealth have had an impact on stock market development in a sample of 17 economies in the Middle East and Central Asia.
See, e.g., Mishkin (1995) and other contributions to the fall 1995 symposium in the Journal of Economic Perspectives.
The maximum number of observations for any given model is 114, but some of the series start later, reducing the number of observations slightly in selected models.
The measures of economic activity and the monetary stance are taken from Moursi, Mossallamy, and Zakareya (2007)—MMZ henceforth—, who construct the latter measure to overcome the lack of a consistent policy interest rate for the sample period. In a model of bank reserves a la Bernanke and Mihov (1998), the measure of the monetary policy stance corresponds to the unpredictable residual to nonborrowed bank reserves, which are not explained by shocks to total and borrowed reserves. See MMZ (2007) and AMB (2007) for a discussion of alternative measures of the monetary policy stance. The WPI is used instead of the CPI due to the weak statistical properties of the latter; see Rabanal (2005) and AMB (2007) for more details. Two exogenous variables (the federal funds rate and the oil price) are also included to avoid well-known empirical anomalies such as the price puzzle; see Favero (2001).
The response to the type of GDP distribution method (Litterman/Chow-Lin), the choice of price level measure (CPI/WPI), and the type of exchange rate (NEER, REER, and bilateral LE-U.S. dollar) is robust.
See AMB for a graphical representation.
In addition to the NEER used in the baseline scenario, AMB employs the REER and the bilateral exchange rate against the U.S. dollar.
For ease of comparison, the lower charts in Figure IV.3 present the inverse of the impulse response to a regular interest rate shock (which would correspond to a monetary tightening).
See AMB, Appendix I, Baseline VAR, bottom row, third chart. Given the definition of the effective exchange rates, an initially negative impulse response corresponds to a depreciation. The appreciation of the NEER over the medium term in response to a monetary easing displayed in the same chart also explains why the response of the WPI to the MP measure dies out much more quickly when the exchange rate channel is alive (top-left panel in Figure IV.3).
In this specification, we have used one lag as indicated by the Schwarz and Hannan-Quinn information criteria. The results are robust to ordering the stock market index before the monetary policy stance, consistent with the assumption that the CBE considers stock market developments as one factor in making (same period) monetary policy decisions.
Credit aggregates are deflated with the WPI and seasonally adjusted (X-12 filter).
See AMB for a more detailed discussion including charts.
Causality tests not reproduced here; see AMB. Due to the limited amount of observations, it is not possible to estimate a VAR based on the overnight interest rate.