The Welfare Effects of a Large Depreciation: the Case of Egypt 2000–2005
The Welfare Effects of a Large Depreciation: the Case of Egypt 2000–2005
Between 2000 and 2005 Egypt experienced a large nominal depreciation of the Egyptian pound, much of it concentrated around a sharp decline in early 2003. This chapter assesses the welfare implications of the large changes in consumer prices that accompanied this movement in the exchange rate. It shows a significant and very heterogeneous relationship across products, and a degree of pass-through from the exchange rate to consumer prices. On average, the welfare cost of these price changes was 7.4% of households' initial expenditure. Since estimated pass-through for food items was significantly greater than for non-food items, the effects of the depreciation disproportionately affected poor households.
Keywords: Egyptian economy, depreciation, consumer prices, exchange rates, welfare costs, poor households
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