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Central Bank of Tunisia's foreign exchange reserves during the crisis period: Key determinants and a currency-based approach to optimizing structure

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  • Ben Mbarek Hassene

    (ESSEC business school Tunisia, University of Tunis)

  • Jday Dorsaf

    (ESSEC BUSINSS SCHOOL tunisia, University of Tunis)

Abstract

This paper examines the main determinants of foreign exchange reserves in Tunisia over a period from 1992 to 2022, totalling 30 annual observations. Using the ARDL model, we include several variables in our study, such as total international reserves, the balance of current payments, public foreign debt, the official exchange rate, inflation, foreign direct investment and workers' abroad remittances. The aim is to identify the variables that affect Tunisia's foreign exchange reserves. The results indicate that trade deficit reduces foreign exchange reserves, highlighting the importance of stimulating exports. Foreign debt shows a positive correlation with reserves, although this relationship is less pronounced than expected. Depreciation of domestic currency and inflation increase reserves, as do foreign direct investment and workers' remittances. In the short term, almost all determinants have an effect on reserves, with the exception of workers' remittances. Readjustment to long-term equilibrium is rapid, with a 43% recovery. It is therefore essential to optimally manage reserves to balance risks. The results indicate that trade deficit reduces foreign exchange reserves, highlighting the importance of stimulating exports. Foreign debt shows a positive correlation with reserves, although this relationship is less pronounced than expected. Depreciation of domestic currency and inflation increase reserves, as do foreign direct investment and workers' remittances. In the short term, almost all determinants have an effect on reserves, with the exception of workers' remittances. Readjustment to long-term equilibrium is rapid, with a 43% recovery. It is therefore essential to optimally manage reserves to balance risks.

Suggested Citation

  • Ben Mbarek Hassene & Jday Dorsaf, 2024. "Central Bank of Tunisia's foreign exchange reserves during the crisis period: Key determinants and a currency-based approach to optimizing structure," Economics Bulletin, AccessEcon, vol. 44(4), pages 1390-1398.
    • Handle: RePEc:ebl:ecbull:eb-24-00294
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    References listed on IDEAS

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    1. Aizenman, Joshua & Cheung, Yin-Wong & Ito, Hiro, 2015. "International reserves before and after the global crisis: Is there no end to hoarding?," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 102-126.
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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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