Thesis (Ph.D.) - Cairo University - Faculty of Economics and Political Science - Department of Economics

The thesis assess monetary and fiscal policy interactions in Egypt and their impact on economic stabilization, through estimating a New Keynesian small open economy DSGE model for Egypt using Bayesian techniques and quarterly data for the period FY2004/2005:Q1-FY2015/2016:Q4. Outcomes of monetary and fiscal authority commitment to policy instruments: interest rate, government spending and taxes are evaluated using Taylor-type and optimal simple rules (OSRs). The results show: (i) while monetary policy attaches major importance to anti-inflationary policy and (to a lesser extent) to output targeting, it responds weakly to exchange rate variations; and (ii) fiscal policies have an important role in output and government debt stabilization. Alternatively, OSR estimates recommend that the monetary authority moderately targets inflation and exchange rate variations. Besides, the monetary authority might not wish to account for output fluctuations when optimally setting its operational target. The optimization estimates suggest that the Egyptian government adheres to a Leeper (1991) passive fiscal policy and, unlike monetary authority, moderately targets output stability. Hence, economic and debt stabilization would be promoted by pro-cyclical government spending and counter-cyclical tax policies. Finally, the OSR estimates emphasize that monetary and fiscal agents in Egypt should limit dependence on policy smoothing

Issued also as CD