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.
The effect of monetary policy shocks on macroeconomic variables: Evidence from the Eurozone
