The external debt-inflation nexus in Egypt
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Date
2021-12
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Article
Publisher
Wiely
Series Info
J Public Affairs.;2021;e2802. wileyonlinelibrary.com/journal/pa © 2021 John Wiley & Sons Ltd. 1 of 18
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Abstract
Egypt has a long history with external financing dating back to the 19th century.
Nevertheless, Egypt's external debt has been mounting remarkably in the past few
years. This paper examines the impact of Egypt's external debt on its price level, a
topic ignored by researchers. Nonetheless, as inflation is a hydra-headed problem,
this paper develops several models which incorporate fiscal and monetary policies
besides other inflation-inducing internal and external factors using monthly data
extending from 2000M1 to 2020 M1. By employing ARDL cointegration analyses on
monthly time series variables and using Egypt's wholesale price index to account for
inflation, the paper concludes that external debt raises prices both in the short and
long runs. Moreover, money supply and interest rate were also found to increase
prices in the long run long despite decreasing them in the short run. Finally, upsurges
in the international prices of primary products stimulate domestic prices both in the
short and long terms, while depreciation in the local currency aggravates inflation in
the short and long terms as well. As external debt raises inflation and affects many
other inflation-inducing factors indirectly, the paper concludes that reducing Egypt's
external debt may help in curbing Egypt's inflation
Description
Keywords
ARDL cointegration, Egypt, external debt, fiscal policy, inflation, monetary policy