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The welfare effects of a large depreciation : the case of Egypt, 2000-05, Volume 1
Author:Kraay, Aart; Country:Egypt, Arab Republic of;
Date Stored:2007/03/27Document Date:2007/04/01
Document Type:Policy Research Working PaperSubTopics:Markets and Market Access; Access to Markets; Economic Theory & Research; Poverty Lines; Commodities
Language:EnglishRegion:Middle East and North Africa
Report Number:WPS4182Collection Title:Policy, Research working paper ; no. WPS 4182
Volume No:1  

Summary: The Egyptian pound depreciated sharply between 2000 and 2005, declining by 26 percent in nominal trade-weighted terms. The author investigates the effect of the large depreciation on household welfare operating through exchange rate-induced changes in consumer prices. He estimates exchange rate pass-through regressions using disaggregated monthly consumer price indices to isolate the impact of the exchange rate changes on consumer prices. Then he uses 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 rate-induced 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 affected poorer households.

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