Exchange Market Pressures in Egypt: Logit and Probit Early Warning Systems


Osama El-baz


This paper investigates the nature of exchange market pressures in Egypt, monetary policy responses as well as the effectiveness of monetary interventions in the foreign exchange market. Empirical analysis revealed that the exchange market in Egypt has been exposed to persistent downward pressures, which has been exacerbated starting from 2011. The monetary authority in Egypt used to play an active role in the foreign exchange market to ensure both liquidity and stability in the market in around 69 percent of the sample period considered. However, around 46 percent of monetary policy interventions have been effective in relieving pressures in the foreign exchange market. Moreover, both upward and downward pressures on domestic currency can have a significant negative long run effect on the absorptive capacity of monetary interventions. Finally, logit and probit early warning systems can be useful in predicting exchange market pressures in Egypt.

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