The Relationship between Money Supply, Exchange Rate and Economic Growth in Egypt during the period (1989-2019)

This research aims to investigate the relationship between the money supply , exchange rate and economic growth in Egypt using annual time series data over the period 1989-2019. The research used Johansen Cointegration Approach, vector error correction model (VECM) and Granger's Causality Test to analyze the relationship among the variables of study. the study concluded that the money supply and the real exchange rate have a significant positive impact on the real GDP in the long run. it is also found that real GDP has a significant positive impact on the real exchange rate and money supply has a significant negative impact on it in the long run. In addition, VECM short -run results showed that the real GDP is determined positively by its previous value and negatively by the lending interest rate. it is also found that an increase in real GDP causes real appreciation in Egyptian pound in the short run. And, the lending interest rate positively affects the real exchange rate. Moreover, it is found that the inflation rate has a significant negative impact on the real exchange rate in the short run. The results of causality tests showed that there is a bidirectional causal relationship  between the real GDP and Real exchange rate in the long run and there is an unidirectional causal relationship between the real GDP and Real exchange rate in the short run running from real GDP to real exchange rate. Moreover, there is unidirectional causal relationship between the real GDP and money supply, and between Real exchange rate and money supply in the long run running from money supply to real GDP and to real exchange rate. The study recommends that the Central bank should adjust the amount of money to stabilize exchange rate and to stimulate the growth in real GDP. Also, the central bank should take into account the interrelationship between real GDP and real exchange rate when it conducts  the monetary policy and exchange rate policy.