Decomposition of the Sources of Real Exchange Rate Misalignment in Egypt: Evidence from the ARDL Model


 This paper examines the behavior of real exchange rate in Egypt over period 1965–2018 by attempting to pursue three interrelated purposes. The first is investigate extent deviations between actual and its equilibrium level illustrate magnitude any currency misalignments. second search for different phases over- undervaluation local explain accompanying economic policies and/or factors leading them. third ultimate purpose explore role transitory permanent deviating from level. Understanding these should help design directed address misalignment currency. An autoregressive distributed lag (ARDL) bound test approach used conducted both bilateral effective rates achieve purposes during selected period. To derive estimate, behavioral (BEER) adopted. findings reveal that Egyptian pound was misaligned value most examined results confirm relative importance terms trade degree openness variables determining followed investment ratio government consumption variables. witnessed a recent phase overvaluation, which began 2009, until free float November 2016, after which, found have experienced new till end examined. show considerable impact fundamental-based prolonged spanning 1986 2003 at as well. Moreover, documented lend general support fact or short-run shocks prove be important influential impacting Egypt.