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The determinants of EURO/TND exchange rate volatility in Tunisia

Author

Listed:
  • Nadia Dridi

    (High School of Economics and Commerce of Tunis)

  • Fathi Ayachi

    (High School of Economics and Commerce of Tunis)

Abstract

This paper aims to study the different determinants of nominal exchange rate volatility of the Tunisian Dinar (TND) against the Euro (EURO), principal money of the commercial and financial partners of Tunisia and, particularly, the most volatile money relative to other international currencies as Dollar. We used monthly data from January 2006 to March 2016. In this study, EURO/TND exchange rate volatility is measured employing EGARCH (1,1) approach. For this purpose, we identify relevant variables that influence exchange rate volatility (net assets in foreign currency, current account, debt service average ratio, average money market interest rate, consumer price index family, Tunindex ) which were included in our model estimation. The cointegration analysis reveals the presence of a long-run equilibrium relationship between exchange rate volatility and its various determinants and shows that only the current account and debt service ratio have significant negative effects on exchange rate volatility during the study period. At the short-run, the VECM indicate the presence of positive significant relationship among all the explanatory variables and exchange rate volatility with exception of average money market interest rate that has a significant negative effect.

Suggested Citation

  • Nadia Dridi & Fathi Ayachi, 2022. "The determinants of EURO/TND exchange rate volatility in Tunisia," Economics Bulletin, AccessEcon, vol. 42(4), pages 1981-1997.
    • Handle: RePEc:ebl:ecbull:eb-22-00463
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    More about this item

    Keywords

    Exchange Rate Volatility; EGARCH; Cointegration; VECM; Impulse- Response Functions and Variance Decomposition Analysis.;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets

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