Stagflation concept, cause and consequences Egypt sample

The use of oil as a tool of political pressure by OPEC members against countries that supported Israel in the 1973 war had a significant impact on the global economic environment. After the significant increase in oil prices at that time, the claim that there was an inverse relationship between unemployment and inflation in the famous Phillips curve was discredited. As a result, the Keynesian analysis received significant criticism as unemployment and inflation increased simultaneously for the first time. This economic situation is called stagflation. The aim of this academic research is to briefly explain the phenomenon of stagflation by economic stagnation in a theoretical framework. Then study this phenomenon in the State of Egypt theoretically and research the relationship between stagflation and the rate of economic growth in the period 1973-2020 by taking total unemployment and inflation. The study concluded that the Egyptian economy was subjected to stagflation during the period 1979-2020, with the exception of the period 1998-2002. Inflation accompanied by stagflation appeared for the first time in Egypt in 1979. This was due to the policy of economic openness applied in 1976 and the increase in interest rates to fight inflation in the same year, which negatively affected investment and employment. In this study, according to Johansen's cointegration analysis, a long-term relationship was observed between the variables. It is clear that there is an inverse relationship between the rate of stagflation and the rate of economic growth in Egypt. An error-correction model (ECM) was computed, according to which the relationship can stabilize over time when the shock hits the model. Finally, the CUSUM square test was performed. And the model has not been restored to the error of building.