Political Violence and Excess Liquidity in Egypt: A Note

In this paper we estimate a time-series model of excess liquidity in the Egyptian banking sector. While financial liberalization and financial stability are found to have reduced excess liquidity, 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. The link between political events and financial outcomes provides a rationale for economic policy interventions by the international community in response to increases in political instability.