Abstract
The purpose of this study is to answer the question Is Egypt ready to apply an IT regime?' The study presumed that a country is ready to apply an IT regime once the prerequisites for an IT regime are met. Comparing the current position of Egypt with some emerging market economies, the conclusions of the study are as follows: (i) the CBE is not factually independent. Although the CBE has been granted legal instrument independence, the existence of government representatives as voting members on the MPC and the coercion of the CBE to extend finance to the government are two elements sufficient to undermine the de facto independence of the CBE; (ii) inflation targets are expected to be missed under the possibility that the behavior of the CBE will be similar to the behavior of the majority of emerging market economies, i.e., adopting an IT regime whereas implicitly targeting FX rates; and (iii) the current level of knowledge about some central issues of designing an IT regime and the quality of the available data are not satisfactory to support the adoption of an IT regime. The study concludes that Egypt is still not ready to apply an IT regime.
Highlights
A recent survey by the IMF assumed that the trend towards the adoption of an Inflation Targeting (IT) regime by the emerging market economies is continuing
The purpose of this study is to answer the question ‘Is Egypt ready to adopt/apply an IT regime?’ The study presumes that a country is ready to apply an IT regime once the prerequisites for an IT regime are satisfied. To explore this presumption in the case of Egypt, the study intends to answer the following questions: (i) what are the prerequisites for an IT regime?; (ii) did emerging market economies satisfy the IT prerequisites in the early days of their adoption of IT regimes?; and (iii) comparing the current position of Egypt to the emerging market economies in the early days of their adoption of IT regimes, has Egypt satisfied the prerequisites for an IT regime? Given the willingness to adopt an IT regime, we assume that a country will adopt/apply an IT regime once it becomes ready for it
The presumption of the study has been explored in the case of Egypt by answering the following questions: (i) what are prerequisites for an IT regime?; (ii) did emerging market economies satisfy the prerequisites for IT in the early days of their adoption of IT regimes?; and (iii) comparing the current position of Egypt to the emerging market economies in the early days of their adoption of IT regimes, has Egypt satisfied the prerequisites for an IT regime?
Summary
A recent survey by the IMF assumed that the trend towards the adoption of an Inflation Targeting (IT) regime by the emerging market economies is continuing. The Central Bank of Egypt (CBE) has announced on several occasions its intention to adopt an IT regime as a framework for its monetary policy once the fundamental prerequisites are met (IMF, 2007; CBE, 2005). The purpose of this study is to answer the question ‘Is Egypt ready to adopt/apply an IT regime?’ The study presumes that a country is ready to apply an IT regime once the prerequisites for an IT regime are satisfied.
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