Abstract
This paper addresses first whether scientific evidence—theoretical and empirical—exists to support the inflation targeting regime and, secondly whether inflation target is worthwhile for Egypt. The method in this paper builds on a literature review of the theoretical and empirical research in the field of economics. Our conclusion shows that there is incomplete evidence from a number of countries supporting the inflation targeting regime as an effective monetary policy framework for the achievement of macroeconomic stability. The paper concludes that the Central Bank of Egypt and the Egyptian economy is not yet ready for the implementation of an inflation targeting regime.
Highlights
The fact that the inflation problem has received increasing attention in recent years has led to an increased interest in the effects of different monetary policy regimes
In order to do that, we explore three basic elements that are the precondition for adopting the inflation target: 1) Independence status of the Central bank of Egypt (CBE); and 2) inflation forecasting capability in Egypt; and 3) existence of relationship between the monetary policy instruments and inflation
The fundamental question was whether scientific evidence—theoretical and empirical—exists to support the inflation targeting regime
Summary
The fact that the inflation problem has received increasing attention in recent years has led to an increased interest in the effects of different monetary policy regimes. Many countries have adopted inflation targeting as a monetary policy with the hopes of effectively reducing inflation and increasing economic and price stability. Economists have started debating the pros and cons for developed and developing countries to shift from the current regime to inflation targeting. This paper will not assess the pros and cones of inflation targeting as this has been extensively discussed in previous studies: See, for example, [6,7,8,9] It has, been observed by [10] that the growing number of countries that target inflation and the perceived success of this monetary policy strategy serve as a stimulus for countries that engage in alternative regimes—such as monetary or exchange rate targeting.
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