How does political violence affect confidence in a local currency? Evidence from Egypt

David Fielding, Anja Shortland

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper we estimate a time-series model of the financial asset portfolio shares in Egypt, distinguishing between assets of varying degrees of liquidity and between domestic currency and foreign currency deposits. While financial liberalization and financial stability are found to have encouraged domestic residents to increase the share of their portfolio composed of domestic currency assets, these effects have been offset by an increase in the number of violent political incidents arising from conflict between radical Islamic groups and the Egyptian state. Greater violence has led to lower domestic asset demand and substitution into foreign currency deposits. The link between political events and financial outcomes provides a rationale for economic policy interventions by Bretton Woods institutions in response to increases in political instability.

Original languageEnglish
Pages (from-to)841-866
Number of pages26
JournalJournal of International Development
Volume17
Issue number7
Early online date20 Sept 2005
DOIs
Publication statusPublished - Oct 2005

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