IMF Working Papers

Tunisia Monetary Policy Since the Arab Spring: The Fall of the Exchange Rate Anchor and Rise of Inflation Targeting

By Nicolas End, Mariam El Hamiani Khatat, Rym Kolsi

August 21, 2020

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Nicolas End, Mariam El Hamiani Khatat, and Rym Kolsi. Tunisia Monetary Policy Since the Arab Spring: The Fall of the Exchange Rate Anchor and Rise of Inflation Targeting, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In this paper, we argue that inflation targeting could be the future of Tunisia’s monetary policy. Monetary targeting has proven to be ineffective due to the composition of reserve money, structural liquidity deficit, and higher instability of the money multiplier after 2010. Exchange rate targeting is no longer feasible due to the level of international reserves, current account deficit, and inflation differentials with main trading partners. The Central Bank of Tunisia has already made important progress toward inflation targeting. The paper evidences the existence of increasingly effective interest rate transmission as well as the changing exchange rate passthrough to inflation with the gradual move toward further exchange rate flexibility.

Subject: Central bank policy rate, Exchange rates, Financial services, Foreign exchange, Inflation, Monetary base, Monetary policy, Monetary policy frameworks, Money, Prices

Keywords: Central bank, Central bank policy rate, Exchange rate, Exchange rate passthrough, Exchange rate targeting, Exchange rates, External shocks, Foreign exchange interventions, Implementation regulation, Inflation, Inflation targeting, Liquidity injection, Monetary base, Monetary operations, Monetary policy, Monetary policy framework, Monetary policy frameworks, Monetary policy implementation, Monetary policy outcome, Monetary policy rule, Monetary policy tightening, Monetary policy transmission, Monetary transmission, Money multiplier, Pass-through coefficient, Policy rate, Policy rate, Policy rate pass-through coefficient, Rate, Transmission mechanism, WP

Publication Details

  • Pages:

    41

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/167

  • Stock No:

    WPIEA2020167

  • ISBN:

    9781513555027

  • ISSN:

    1018-5941

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