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Revisit of Tunisia s Money Demand Function: What About Oil Price and Exchange Rate Effects?

Author

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  • Malika Neifar

    (Department of New Economic, Institut des Hautes Etudes Commerciales de Sfax, Sfax University, Tunisia.)

  • Niazi Kammoun

    (Department of New Economic, Institut des Hautes Etudes Commerciales de Sfax, Sfax University, Tunisia.)

Abstract

This paper examines the long run and short run dynamic relationship between real broad money and macroeconomic factors in Tunisia for the period 2010M01 to 2019M07. We employ linear and NARDL bound testing approach for co-integration between the money demand measure and its determinants. Three real broader money demand variables (M2, M3, and M4) are considered to show that exchange rate have asymmetric significant effects once we introduce nonlinearity in the long run as well as in the short run association through partial sum concept. Then, by using the (Shin et al., 2014) NARDL approach, we show that currency appreciation and depreciation could affect the demand for money in an asymmetric manner. However, in the long run, it is only the oil price and Tunisian Dinar (TD) depreciation and appreciation which have significant effect out of the five considered macroeconomic factors (real income, interest rates, inflation, oil price, and the exchange rate). Besides, the CUSUMSQ stability tests results reveal that only real M3 money demand function which is clearly stable. In implementing monetary policy, the Tunisian central bank (TCB) should target the M3 monetary aggregate and take into account of the exchange rate changes stabilization. In addition, Tunisian government has interest to promote renewable energies production to face bad news of rising oil price which are one of the important causes of exchange rate fluctuations and high inflation.

Suggested Citation

  • Malika Neifar & Niazi Kammoun, 2022. "Revisit of Tunisia s Money Demand Function: What About Oil Price and Exchange Rate Effects?," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 106-116, September.
    • Handle: RePEc:eco:journ1:2022-05-12
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    Cited by:

    1. Mohamed Ali Chroufa & Nouri Chtourou, 2023. "Asymmetric relationship between exchange rate and inflation in Tunisia: fresh evidence from multiple-threshold NARDL model and Granger quantile causality," SN Business & Economics, Springer, vol. 3(7), pages 1-21, July.

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    More about this item

    Keywords

    Tunisia; Demand for Money; Stability; Asymmetric effects of exchange rate; oil price; NARDL model;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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