An Assessment of the Real Exchange Rate Misalignments in Egypt: An Application of the Behavioral Equilibrium Approach
This paper estimates the equilibrium real effective exchange rate for the Egyptian economy during the period (1974-2012). The paper reviews the evolution of Egypt’s exchange rate policy and the most significant developments of its real effective exchange rate during the same period. Using a behavioral equilibrium exchange rate (BEER) approach, it calculates the extent of real effective exchange rate misalignments in Egypt. There is evidence that the actual real effective exchange rate has deviated from the equilibrium real effective rate with various degrees during the estimation period. The Egyptian pound was overvalued before the launch of the ERSAP. The latter marked an undervaluation period that lasted till 1998. The findings indicate that the pound approached to its equilibrium level thereafter.
