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Does the Tunisian Central Bank follow an augmented nonlinear Taylor rule?

Author

Listed:
  • Nidhal Mgadmi

    (Management-Mahdia-Tunisia)

  • Slim Chaouachi

    (Higher Institute of Management of Tunis)

  • Wajdi Moussa

    (Higher Institute of Management of Tunis)

  • Azza Bejaoui

    (Management-Mahdia-Tunisia
    Higher Institute of Management of Tunis)

Abstract

The Tunisian economy was affected by political and financial instability after the 14 January revolution which led to a fall in investment and a rise in the inflation rate. In this paper, we attempt to estimate the nonlinear reaction function of the Tunisian Central Bank (TCB) through modeling the Taylor rule. Needless to say, the Taylor rule is a tool used by the monetary authorities to estimate short-term interest rate when expected inflation rate differs from target inflation rate and expected growth rate of GDP differs from long-term growth rate of GDP. In this paper, we apply STAR model on monthly and quarterly data during the period 2010–2017. Such model enables to take into consideration the asymmetries in the preferences of the TCB in terms of objectives. The empirical results clearly show that the cyclical phenomenon of the Tunisian monetary policy with asymmetrical phases is well-documented. Such asymmetry can be justified by the fact that the TCB shows an unequal aversion towards a recession and an economic expansion or during high inflation and deflation periods.

Suggested Citation

  • Nidhal Mgadmi & Slim Chaouachi & Wajdi Moussa & Azza Bejaoui, 2021. "Does the Tunisian Central Bank follow an augmented nonlinear Taylor rule?," SN Business & Economics, Springer, vol. 1(1), pages 1-15, January.
    • Handle: RePEc:spr:snbeco:v:1:y:2021:i:1:d:10.1007_s43546-020-00032-7
    DOI: 10.1007/s43546-020-00032-7
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    Cited by:

    1. Akyurek, Cem & Kutan, Ali M. & Yilmazkuday, Hakan, 2011. "Can inflation targeting regimes be effective in developing countries? The Turkish experience," Journal of Asian Economics, Elsevier, vol. 22(5), pages 343-355, October.
    2. Thang, Doan Ngoc & Anh, Pham Thi Hoang & Long, Trinh & Dong, Do Phy & Dat, Luong Van, 2022. "Monetary Stance and Favorableness of Monetary Policy in the Media: The Case of Viet Nam," ADBI Working Papers 1325, Asian Development Bank Institute.

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    More about this item

    Keywords

    Taylor rule; Monetary policy; Inflation; STAR models; The tunisian revolution;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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