Can increasing interest rates manage inflation in Egypt without triggering a recession? New insights from Structural Equation Modeling (SEM) | ||
| مجلة الدراسات التجارية المعاصرة | ||
| Volume 11, Issue 20, April 2025, Pages 806-834 PDF (1.5 M) | ||
| Document Type: المقالة الأصلية | ||
| DOI: 10.21608/csj.2025.375939.1610 | ||
| Authors | ||
| نشوى محمد عبد ربه* 1; هانى محمد الدمرداش2; مها محمد عادل عبدالعزيز عبيد3 | ||
| 1کلية التجارة جامعة طنطا مصر | ||
| 2Professor of Economics in Department of Economics and Public Finance, Faculty of Commerce, Tanta University | ||
| 3Lecturer of Management in Department of Management, Faculty of Commerce, Tanta University | ||
| Abstract | ||
| This study sought to determine whether raising interest rates can effectively address the inflation problem in Egypt without causing a recession. This was done using structural equation modeling (SEM) over the period (1991-2024) to evaluate the direct and indirect effects of monetary policy on inflation and economic growth. The results showed that a 1% increase in the interest rate on deposits at central banks leads to an increase in lending rates by 0.73%, liquidity by 16.4%, and asset prices by 11.7%, but reduces private sector credit by -0.98%. Higher lending rates significantly reduce inflation by -3.4%, supporting the Keynesian theory, while higher asset prices slightly boost inflation by 0.045%. Asset prices and private credit positively affect GDP growth. The model demonstrates strong explanatory power (R² = 0.983), which confirms the effectiveness of raising interest rates in curbing inflation but highlights the need to set criteria to avoid deflation. Excessive credit, this study attempts to clarify a vision for achieving a balance between controlling inflation and growth through targeted monetary measures. | ||
| Keywords | ||
| Interest Rates; Inflation; Monetary Policy | ||
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