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Tunisia's Experience with Real Exchange Rate Targeting and the Transition to a Flexible Exchange Rate Regime

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  • International Monetary Fund
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    Abstract

    Over the past decade or so, Tunisia has experienced a strong economic performance while pursuing a constant real exchange rate rule (CRERR). The limitations of this rule are now beginning to emerge in the context of a more open economy, regional integration, a more market-based monetary policy, and the desire to relax capital controls. This paper explores how Tunisia avoided the pitfalls of real exchange rate targeting as predicted by the theoretical models. By estimating the equilibrium real exchange rate based on fundamental variables and assessing different measures of competitiveness, the paper finds no evidence of a misalignment in the current level of the exchange rate.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/190.

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    Length: 27
    Date of creation: 01 Nov 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/190

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    Related research

    Keywords: Real effective exchange rates; Flexible exchange rates; Exchange rate regimes; exchange rate; real exchange rate; inflation; terms of trade; foreign exchange; exchange rates; monetary policy; effective exchange rates; real effective exchange rate; effective exchange rate; equilibrium exchange rate; relative price; price level; relative prices; exchange rate regime; nominal exchange rate; exchange rate indices; exchange rate targeting; inflationary pressures; flexible exchange rate; exchange rate rule; money supply; gdp deflator; inflation rate; exchange rate indicators; foreign currency; inflation tax; foreign exchange market; exchange rate appreciation; flexible exchange rate regime; real exchange rates; floating exchange rate; price stability; constant real exchange rate; increase in inflation; exchange rate target; fixed exchange rate; price inflation; exchange rate behavior; real exchange rate appreciation; exchange rate policy; exchange rate system; basket of currencies; terms of trade shocks; wage-price; real exchange rate behavior; fixed exchange rate regime; fixed exchange rate system; nominal exchange rates; nominal interest rate; average exchange rates; foreign exchange policy; exchange rate volatility; exchange rate rules; exchange rate adjustments; exchange rate expectations; alternative exchange rate regimes; floating exchange rate regime; exchange rate fluctuations; rates of inflation; inflation performance; floating exchange rate system; higher rates of inflation; high inflation rate; real money; real wages; exchange rate depreciation; rate of inflation; general price level; high inflation; price competitiveness; alternative exchange rate; current account balance; market exchange rate; exchange policy;

    References

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    1. Peter J. Montiel & Jonathan D. Ostry, 1991. "Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 872-900, December.
    2. S. Micossi & Gian-Maria Milesi-Ferretti, 1994. "Real Exchange Rates and the Prices of Nontradable Goods," IMF Working Papers 94/19, International Monetary Fund.
    3. Martine Guerguil & Martin David Kaufman, 1998. "Competitiveness and the Evolution of the Real Exchange Rate in Chile," IMF Working Papers 98/58, International Monetary Fund.
    4. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
    5. Gian-Maria Milesi-Ferretti & Philip R. Lane, 1999. "The External Wealth of Nations," IMF Working Papers 99/115, International Monetary Fund.
    6. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
    7. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
    9. Andrew Berg & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Esteban Jadresic & Paul R. Masson, 2000. "Exchange Rate Regimes in an Increasingly Integrated World Economy," IMF Occasional Papers 193, International Monetary Fund.
    10. Steven A. Symansky & Peter B. Clark & Leonardo Bartolini & Tamim Bayoumi, 1994. "Exchange Rates and Economic Fundamentals," IMF Occasional Papers 115, International Monetary Fund.
    11. Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
    12. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
    13. Ian W. Marsh & Stephen Tokarick, 1994. "Competitiveness Indicators," IMF Working Papers 94/29, International Monetary Fund.
    14. Ashok Kumar Lahiri, 1991. "Money and Inflation in Yugoslavia," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 751-788, December.
    15. Leslie Lipschitz & Donogh McDonald, 1991. "Real Exchange Rates and Competitiveness," IMF Working Papers 91/25, International Monetary Fund.
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    Citations

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    Cited by:
    1. Ludvig Söderling & Domenico Fanizza, 2006. "Fiscal Determinants of Inflation," IMF Working Papers 06/216, International Monetary Fund.
    2. Hend Sfaxi Benahji, 2008. "Choice of the Exchange Policies in the Developments Countries: Study of the Competitiveness of Tunisia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(3), pages 353-367, September.
    3. BEN ALI Mohamed Sami, 2006. "Capital Account Liberalization And Exchange Rate Regime Choice, What Scope For Flexibility In Tunisia?," William Davidson Institute Working Papers Series wp815, William Davidson Institute at the University of Michigan.
    4. Adnen Chockri & Ibticem Frihka, 2011. "La portée de la politique de ciblage d’inflation: Approche analytique et empirique pour le cas Tunisien," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(1), pages 91-111, March.
    5. World Bank, 2006. "Fostering Higher Growth and Employment in the Kingdom of Morocco," World Bank Publications, The World Bank, number 7114, October.
    6. Grand Nathalie & Dropsy Vincent, 2005. "Exchange Rate And Inflation Targeting In Morocco And Tunisia," Macroeconomics 0507018, EconWPA.
    7. Fatma Marrakchi Charfi, 2008. "Equilibrium real exchange rate and misalignments : Lessons from a VAR-ECM model applied to Tunisia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(4), pages 439-464, December.

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