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Diagnosis of Monetary Policy in Tunisia During the Last Decade: a DSGE Model Approach

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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.

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Notes

  1. Given that, the external trade represents a significant fraction of the Tunisian GDP and that the Tunisian economy is strongly subject to fluctuations in the world, the framework of a small open economy is the most adequate for our modeling. Therefore, it is not a closed economy model as in (Lahouel, Slimane and Tahar, 2012; Abdelli and Belhadj, 2015), but rather of a small open economy sensitive to external shocks.

  2. In addition to real rigidities

  3. A household member j can either divides their time between work and leisure.

  4. The higher the β value decreases, the lower the household values ​​its future consumption compared to today

  5. It should be noted that the real money is a financial asset that is not related interest, but since they facilitate transactions, households will hold a certain amount

  6. for example, it is often harder to imagine a shock that would change preferences for consumption or leisure

  7. The parameter η should influence the degree of the equilibrium state of work in the model.

  8. The sum of domestic Treasury bill \( {\ \mathrm{B}}_{\mathrm{t}}^{\mathrm{d}} \), and foreign Treasury bill \( {B}_t^f \)

  9. The inverse of the normative approach is the descriptive approach which seeks to estimate partial equilibrium a Taylor rule Vangu (2014).

  10. Resulting in 56 observations then reduced to 54 after eliminating the data 2014Q3 and 2014Q4 due to the differentiation of the data.

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Authors and Affiliations

  1. Faculty of Economics and Management of Sfax, Airport Road, KM 4.5, 3018, Sfax, Tunisia

    Kawther Alimi, Mohamed Chakroun & Grégory Levieuge

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  1. Kawther Alimi
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  2. Mohamed Chakroun
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  3. Grégory Levieuge
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Correspondence to Kawther Alimi.

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Alimi, K., Chakroun, M. & Levieuge, G. Diagnosis of Monetary Policy in Tunisia During the Last Decade: a DSGE Model Approach. J Knowl Econ 10, 348–364 (2019). https://doi.org/10.1007/s13132-017-0455-3

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