Is the Tunisian Central Bank following a Linear or a Nonlinear Augmented Taylor Rule?

The political transition in the Arab Spring countries has been accompanied by a deterioration of economic and financial indicators like in the Tunisian case. This paper aims to get a deeper understanding of the nature of the rule that reflects the behavior of the Tunisian monetary authority in the current dominance of economic and financial instability. In particular, this paper assesses whether the Tunisian Central Bank is indeed following a linear or a non linear augmented Taylor rule. For our purpose, we use a forward looking version of Taylor rule augmented by including the effect of exchange rate to estimate the linear and the nonlinear models. A smooth transition regression model is used to estimate the nonlinear rule. The results obtained imply that the Tunisian Central Bank follows a nonlinear Taylor rule in the conduct of monetary policy. In addition, our evidence suggests that the reaction of  monetary authority in Tunisia  to the deviation of forecasts of inflation rate, output gap and exchange rate changes in terms of magnitude and statistical significance across the high and low interest rate regimes. In particular, when the lagged interest rate is above the threshold level of 4.76%, the main objective of the policy makers is to fight the inflation rate and to limit the depreciation of exchange rate rather than to boost the economic activity. Keywords: Taylor rule, smooth transition regression model, interest rate reaction function, nonlinearity JEL Classifications: C22, E17, E43, E52, E58 DOI: https://doi.org/10.32479/ijefi.897

La Politique de Ciblage d’Inflation et “Pass-through” du Taux de Change : Une Analyse en Modèle Panel VAR dans le cadre des Pays Emergents

This research paper has attempted to analyze the nature of the leverage exerted by the inflation targeting (IT) policy on the pass-through effect in emerging countries. In other words, we tried to answer to the question of whether a climate of low inflation in these countries through the adoption of IT policy, reduces the transmission degree of exchange rate variations to domestic prices (import prices, producer prices and consumer prices). During this investigation, we used a panel VAR approach on a large sample of 30 emerging countries (14 inflation targeters and 16 non- inflation targeters), covering the 1980-2009 period. Our results, learned from the impulse response functions analysis that largely corroborates to the variance decomposition, show that the adoption of IT has helped the targeting countries to reduce the transmission of the exchange rate variations (pass-through) to the three domestic prices indices. Finally, it is suggested for non- inflation targeters, which have experience marked by a too high pass-through effect, to adopt the IT policy in order to gain in terms of credibility and therefore benefit from the feed-back effect in favor of the monetary policy conduct

Did financial liberalization lead to bank fragility? Evidence from Tunisia

The debate on the effects of financial liberalization on banking sector is far from being conclusive. In fact, financial liberalization is recommended by some scholars on the one hand and it is not supported by some others in the other hand. In this confused situation, it is so interesting to study the consequences of the introduction of financial liberalization program on the Tunisian banking sector in order to evaluate the country’s experience. To reach this goal, we collected date related to 9 banks observed for the period of 1980-2009. By using a Seemingly Unrelated Regression (SUR), our estimation shows that financial liberalization affected negatively the profitability of Tunisian banks and increased the degree of credit risk. Empirical results show, however, that financial liberalization increased significantly the liquidity of banks, tanks to liberalization of deposit interest rates and the accumulation of capital inflows from international companies

Revisiting the Exchange Rate Pass-through in Emerging Markets

This paper aims to investigate the links between exchange rate pass-through (ERPT) and monetary policy. We examine the degree of ERPT to consumer prices for 11 emerging markets (6 inflation targeters and 5 non-inflation targeters) using both multivariate cointegrated VAR (CVAR) and impulse responses derived from the vector error correction model (VECM). Results of cointegration analyses suggest that the degree of ERPT is lower in ITers than in non-ITers. Besides, the impulse response estimates at 48 months are extremely close to the cointegration estimates in IT countries compared to those non-IT countries. The adjustment process is fully completed during the considered time horizon in the impulse response analysis. This finding confirms the literature review on the importance of the inflation environment and the monetary policy credibility in determining ERPT. The level of ERPT tend to decline in the countries where monetary policy moved strongly towards stabilizing inflation

Revisiting the Exchange Rate Pass-through in Emerging Markets

This paper aims to investigate the links between exchange rate pass-through (ERPT) and monetary policy. We examine the degree of ERPT to consumer prices for 11 emerging markets (6 inflation targeters and 5 non-inflation targeters) using both multivariate cointegrated VAR (CVAR) and impulse responses derived from the vector error correction model (VECM). Results of cointegration analyses suggest that the degree of ERPT is lower in ITers than in non-ITers. Besides, the impulse response estimates at 48 months are extremely close to the cointegration estimates in IT countries compared to those non-IT countries. The adjustment process is fully completed during the considered time horizon in the impulse response analysis. This finding confirms the literature review on the importance of the inflation environment and the monetary policy credibility in determining ERPT. The level of ERPT tend to decline in the countries where monetary policy moved strongly towards stabilizing inflation

Revisiting the Exchange Rate Pass-through in Emerging Markets

This paper aims to investigate the links between exchange rate pass-through (ERPT) and monetary policy. We examine the degree of ERPT to consumer prices for 11 emerging markets (6 inflation targeters and 5 non-inflation targeters) using both multivariate cointegrated VAR (CVAR) and impulse responses derived from the vector error correction model (VECM). Results of cointegration analyses suggest that the degree of ERPT is lower in ITers than in non-ITers. Besides, the impulse response estimates at 48 months are extremely close to the cointegration estimates in IT countries compared to those non-IT countries. The adjustment process is fully completed during the considered time horizon in the impulse response analysis. This finding confirms the literature review on the importance of the inflation environment and the monetary policy credibility in determining ERPT. The level of ERPT tend to decline in the countries where monetary policy moved strongly towards stabilizing inflation

Modelling non-interest income at Tunisian banks

The aim of this paper is to investigate the role of non-interest income as an important determinant of the total bank revenue for the Tunisian context. Our sample is based on 10 deposit banks observed during the period 1998-2009. By applying the panel data estimation our results indicate that only the information technology, the size of bank and the banking strategy affect significantly the non-interest income. However, the impact of macro factors appears to be insignifican

Financial Liberalization and Banking Profitability: A Panel Data Analysis for Tunisian Banks

The financial liberalization policy was implemented in several countries in order to have a modern and a dynamic financial sector and to boost economic growth. However, the consequences of this program diverge from one country to another one. In this paper, we focus our attention to the Tunisian case study. To this end, we collected data from 9 banks over the period 1980-2006, and we employed the panel data analysis. The results of our study show a negative and significant relationship between financial liberalization and banking profitability. This shows that liberalization has harmed the domestic banking system

Did financial liberalization lead to bank fragility? Evidence from Tunisia

The debate on the effects of financial liberalization on banking sector is far from being conclusive. In fact, financial liberalization is recommended by some scholars on the one hand and it is not supported by some others in the other hand. In this confused situation, it is so interesting to study the consequences of the introduction of financial liberalization program on the Tunisian banking sector in order to evaluate the country’s experience. To reach this goal, we collected date related to 9 banks observed for the period of 1980-2009. By using a Seemingly Unrelated Regression (SUR), our estimation shows that financial liberalization affected negatively the profitability of Tunisian banks and increased the degree of credit risk. Empirical results show, however, that financial liberalization increased significantly the liquidity of banks, tanks to liberalization of deposit interest rates and the accumulation of capital inflows from international companies