Currency Diversification and Export Competitiveness: A Model of the "Egyptian Disease" / Jorge Braga de Macedo.

By:

de Macedo, Jorge Braga

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0776.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

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Abstract: The paper presents a dynamic portfolio model under currency inconvertibility which rationalizes the recent Egyptian experience of real exchange rate appreciation and currency diversification following the increase in oil exports and the partial financial liberalization that took place after 1976. The two shocks are linked because the relative price of manufacturing exports in terms of oil is also the premium of the black market rate over the official exchange rate. The effects of various official exchange rate policies on the temporary equilibrium values of the premium and the real wage and on the steady-state values of asset stocks are examined. A review of the Egyptian experience shows that as the model suggests the official devaluation of 1979 was ineffective against the "Egyptian disease" so that little can be expected from the 1981 devaluation. In light of the model results, a crawling peg policy is proposed instead.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0776 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

October 1981.

The paper presents a dynamic portfolio model under currency inconvertibility which rationalizes the recent Egyptian experience of real exchange rate appreciation and currency diversification following the increase in oil exports and the partial financial liberalization that took place after 1976. The two shocks are linked because the relative price of manufacturing exports in terms of oil is also the premium of the black market rate over the official exchange rate. The effects of various official exchange rate policies on the temporary equilibrium values of the premium and the real wage and on the steady-state values of asset stocks are examined. A review of the Egyptian experience shows that as the model suggests the official devaluation of 1979 was ineffective against the "Egyptian disease" so that little can be expected from the 1981 devaluation. In light of the model results, a crawling peg policy is proposed instead.