The Policy-Mix Dilemma: Dominance, Tug of War, or Balancing Compromises?

Authors

Dina Kassab

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The Policy-Mix Dilemma: Dominance, Tug of War, or Balancing Compromises?

Abstract

Over the past 60 years, Egypt’s fiscal and monetary policies, and their combination, have undergone significant shifts. With the Central Bank of Egypt directing monetary policy and the government overseeing fiscal policy, conflicting objectives have often arisen. Coordination, or the lack thereof, has profoundly impacted Egypt’s trajectory in terms of growth, debt, and inflation. This chapter explores the interplay between fiscal and monetary policies in Egypt, synthesizing existing literature and substantial research to piece together a comprehensive understanding of their dynamics. The first section surveys the theoretical literature on monetary-fiscal policy interactions. The second chronicles their history in Egypt, particularly during economic cycles, structural adjustment programs, and times of political instability. Empirical findings are discussed in section three within the context of the country’s institutional framework. The final section examines recent developments, opportunities, challenges, and reforms needed to enhance the ability of the policy mix to achieve economic stabilization objectives.

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