THE MONETARY POLICY OF THE CENTRAL BANK OF TUNISIA : AN ASSESSMENT

Abstract

Tunisia has been undertaking reforms of its financial sector as part of broader macroeconomic adjustment program and structural reform since 1987. The main objectives of the reforms are (i) to curb inflation, (ii) to make real interest rates positive and (iii) then to lower them so as to stimulate the investment and to promote savings. In order to reach these goals, Tunisian monetary authorities decided to adopt a monetary targeting strategy. First, it seeks to provide a description of the central characteristics of the Tunisian monetary policy. Second, it examines the relevance of the preconditions of the implementation of the monetary targeting strategy in the light of the recent developments of time series econometrics. Third, it seeks to check if the Central Bank of Tunisia succeeded in orienting the expectations of the public. It has been found using causality, cointegration and exogeneity tests that the monetary targeting preconditions are not gathered yet. Our analysis highlighted the difficulties of implementing a base regime especially under the financial stability restriction; it casts serious doubts on the feasibility of such regime. It is found also that the official target announcements did not provide optimal guidance to economic agents regarding the future course of the money supply. Finally our paper concludes that the Central Bank of Tunisia that regards itself as a monetary targeter should instead be seen as having followed a discretionary monetary policy with a focus on price stability.

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