The Impact of Exchange Rate Liberalization on Some Macroeconomic Variables in Egypt

Abstract

The research aimed to study the effect of liberalizing exchange rate fluctuations of the Egyptian pound against the US dollar on some macroeconomic performance indicators such as: inflation, commodity exports, and foreign direct investment, using the Autoregressive Linear Delayed Gaps (ARDL) model. It has been shown that there is a co-integration relationship between the exchange rate and both: the value of commodity exports, the inflation rate, and foreign direct investment. There is also a short-term equilibrium relationship towards the long-term between the exchange rate and the same variables mentioned above. The research recommended not to rely on raising the interest rate only to reduce inflation, but it is necessary to carry out structural reforms in the structures of production and exports, as well as to reconsider the foreign direct investment system, and to generate job opportunities through the injection of new foreign investments, instead of selling shares in existing companies, as the goal of foreign investment is to create new productive capacity within society, whose economic and social effects will affect the Egyptian market.