After the 2011 revolution, Egypt’s central Bank (CBE) changed its stance from a managed floating exchange rate regime to stabilizing the EGP, even though the market kept pushing for a devaluation to adjust Egypt’s trade competitiveness given the deteriorating state of the economy in general and the external balance specifically. This paper tries to judge the behavior of the Central Bank by looking at the possible effects of a real devaluation on Egypt’s trade competitiveness. Using an ARDL model, we study both the 2003 devaluation and the 2013 partial devaluation, and conclude that the impact of a real devaluation on Egypt’s trade balance is statistically insignificant. We further show that a J-curve effect is not present given the stationary characteristic of the real exchange rate. In effect, we do not find any positive incentives regarding trade competitiveness, for the Central Bank to consider devaluation as a possible remedy to improving Egypt’s external balance of payments.
Topics in Middle Eastern and North African Economies, electronic journal, Volume 16, Middle East Economic Association and Loyola University Chicago, September, 2014, http://www.luc.edu/orgs/meea/
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