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Exchange rate Pass-Through to domestic prices in Tunisia: a short and long run analysis

Author

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  • Helali, Kamel
  • Kalai, Maha
  • Boujelben, Thouraya

Abstract

This study analyzes the impact of the exchange rate fluctuations in the short and long-runs in Tunisia under a pure commitment policy through two channels. The first is the Structural Vector Autoregression used to analyze the short run effects of the exchange rate on the industrial production index and on the consumer and import price indexes. The second is the Vector Error Correction Model used to examine the long run dynamic effects of the exchange rate upon the same variables relying on Tunisian monthly data during the period January 1993 to June 2011. Unlike several empirical studies, which show that the impact of the exchange rate movements on prices has been reduced over the past few years in the industrialized countries, the exchange rate is found to be a potential source not only of production but also of inflation reduction in Tunisia. Indeed, the direct channel of the exchange rate seems to have a significant impact on production and inflation in the long-run, whereas the indirect one has no effect on the money supply. These results strongly support the monetary policy of the central bank targeting the exchange rate because there is a strong correlation between this rate and prices.

Suggested Citation

  • Helali, Kamel & Kalai, Maha & Boujelben, Thouraya, 2014. "Exchange rate Pass-Through to domestic prices in Tunisia: a short and long run analysis," MPRA Paper 62204, University Library of Munich, Germany, revised 10 Dec 2014.
    • Handle: RePEc:pra:mprapa:62204
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    References listed on IDEAS

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    Cited by:

    1. Pınar GÖKTAŞ, 2019. "Asymmetric Transition Effects of the Exchange Rate on Consumer Prices in Turkey," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(42).
    2. Dahem, Ahlem & Siala Guermazi, Fatma, 2016. "Exchange rate Pass-through and Monetary Policy in Transition Economy: Evidence from Tunisia with disaggregated VAR Analysis," MPRA Paper 74179, University Library of Munich, Germany.
    3. Kashif MUNIR, 2022. "Linear and nonlinear effect of exchange rate on inflation in Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(631), S), pages 165-174, Summer.
    4. Ahlem Dahem1 & Fatma Siala Guermazi, 2016. "Exchange Rate Pass-through and Monetary Policy in Transition Economy: Evidence from Tunisia with a Disaggregated VAR Analysis," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 50-63.

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    More about this item

    Keywords

    Exchange rate Pass-through; domestic prices; short and long run analysis; Tunisia.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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