Abstract
The Central Bank of Egypt announced the flotation of the Egyptian Pound in January 2003. Yet, the somewhat stable exchange rate raises questions about its actual role in monetary policy. This paper assesses whether exchange policy significantly changed after the float. It first applies cointegration methodology using monthly data from 1981 to 2008 to show that there is a long-run relationship between the LE/US$ exchange rate and monetary fundamentals. A vector error-correction model shows that the speed of exchange rate adjustment to long-run equilibrium is slow and that there has not been a significant change in exchange rate determination after the float. Finally, Egypt’s de facto exchange rate regime could be classified as “fixed” for several years after the de jure float was announced.
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