Diagnosis of Monetary Policy in Tunisia During the Last Decade: a DSGE Model Approach
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Diagnosis of Monetary Policy in Tunisia During the Last Decade: a DSGE Model Approach Kawther Alimi 1 & Mohamed Chakroun 1 & Grégory Levieuge 1
Received: 8 February 2016 / Accepted: 2 February 2017 # Springer Science+Business Media New York 2017
Abstract This paper intends to analyze the dynamics of monetary policy in Tunisia during the last decade. In particular, we seek to explain the main factors that have hindered the achievement of the paramount objective of the monetary authority to stabilize prices. To do this, we used a dynamic stochastic general equilibrium (DSGE) model, of a small open economy. The model is estimated by using Bayesian techniques and includes three different types of structural shocks. We found that the output gap is less sensitive to interest rates, which reduces the impact of the real effects of the monetary policy shocks on aggregate demand. Moreover, Tunisia’s central bank has not followed during the 2000s an offensive and stabilizing monetary policy, given that the nominal interest rate reacts less to inflation deviations from its target and actively to fluctuations in production from its retarded level. Keywords Monetary policy . DSGE model . Bayesian analysis
Introduction Since 2007–2008, Tunisia has been affected by several economic problems. The 2011 revolution has highlighted the fragility of the Tunisian economy and underpins put additional pressure on the country’s economy. In fact, many events have threatened the Tunisian economy and urge the economists to better develop the monetary policy (Abdelli and Belhadj, 2015). Note for example, the evolution of inflation from 4.9% in 2014 to 5.6% in 2015 (the Central Bank of Tunisia (BCT, 2015). In the mid-2007, Tunisia has acknowledged an acceleration of the real GDP of 5% and a significant reduction of inflation (i.e. 2%) due to the monetary tightening. Noteworthy, however, and after the end of 2013, the BCT underlined that the economic growth rate went
* Kawther Alimi [email protected]; [email protected]
1
Faculty of Economics and Management of Sfax, Airport Road, KM 4.5, 3018 Sfax, Tunisia
J Knowl Econ
down to 2.4 from 3.7% in 2012. The deterioration of the situation was essentially in relation with the downturn in business that affected some sectors, mainly those of agriculture and fishing as well as the manufacturing industry. In 2014, this rate was established at 2.3%. As of the inflation rate, it continuously increased and set at 4.5 and 5.6% in 2014 and 2015, respectively. This difficult situation has exposed the inability of the BCT of Tunisia to achieve its primary objective of price stability. Therefore, the economic stability has acquired a growing interest in the Tunisian monetary authority. Hence, our paper’s primary goal is to criticize the inability of the latter to stabilize the economy. This paper also intends to analyze the dynamics of monetary policy in Tunisia during the last decade and seeks to explain the main factors that prevented the economic stability. To do so, we estimate a
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