The Welfare Effects of a Large Depreciation : The Case of Egypt , 2000 - 05

  • Aart Kraay
  • Published 2007

Abstract

The Egyptian pound depreciated sharply between 2000 and 2005, declining by 26 percent in nominal trade-weighted terms. This paper investigates the effect of the large depreciation on household welfare operating through exchange rate-induced changes in consumer prices. I estimate exchange rate pass-through regressions using disaggregated monthly consumer price indices to isolate the impact of the exchange rate changes on consumer prices. I then use household-level data from the 2000 and 2005 Egyptian household surveys to quantify the welfare effects of these consumer price changes at the household level. The average welfare loss due to exchange rateinduced price increases was equivalent to 7.4 percent of initial expenditure. Stronger estimated exchange rate pass-through for food items imply that this effect disproportionately impacted poorer households. World Bank Policy Research Working Paper 4182, April 2007 The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org. __________________________________________ 1818 H Street N.W, Washington, DC, 20433, akraay@worldbank.org, http://econ.worldbank.org/staff/akraay. This paper was prepared as background for the 2007 Egypt Poverty Assessment. I would like to thank without implication Sherine El-Shawarby, Heba El-Laithy, Faika El-Refaie, Francisco Ferreira, Jed Friedman, Michael Lokshin, Martin Ravallion, Luis Serven, and conference participants at the Egyptian Center for Economic Studies for helpful discussions. WPS4182

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Cite this paper

@inproceedings{Kraay2007TheWE, title={The Welfare Effects of a Large Depreciation : The Case of Egypt , 2000 - 05}, author={Aart Kraay}, year={2007} }