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Tranmission Of International Shocks To An Emerging Small Open-Economy: Evidence From Tunisia

Author

Listed:
  • Mohamed BELHEDI

    () (MOfid UR13 ES60, Faculty of Economics and Management, University of Sousse)

  • Ines SLAMA

    () (MOfid UR13 ES60, Faculty of Economics and Management, University of Sousse)

  • Amine LAHIANI

    () (LEO-UMR 7322, CNRS, University of Orléans)

Abstract

This paper examines how international monetary shocks are transmitted to emerging market countries like Tunisia. A long-standing empirical literature on the transmission of international shocks was mainly based on small-scale structural VAR approach. This paper proposes a Factor-Augmented VAR (FAVAR) model to select the main determinants of the Tunisia’s economy and assess the response of Tunisia’s macroeconomic variables to international fundamental variables. In particular, we aim to analyze the impact that world shocks may have on the Tunisian economy following the 2008 international financial crisis. This specification allows exploiting a wide range of variables that could influence the conduct of the monetary policy as well as spur the transmission mechanism of external monetary shocks to the national economy. We are mainly interested in specific sources of shocks, such as unanticipated fall in the global economic activity, in interest rates and in commodity prices. Our approach relies on a large panel of data covering Tunisia and 10 European and industrialized countries including Tunisia, and 211 price, activity and money indicators. Our results show that the Tunisian economy is highly exposed to the shocks of foreign economic activity and commodity prices and, to a lower extend, to shocks of foreign interest rates and world inflation. Our findings also suggest that international shocks are transmitted to Tunisia's national economy through real channels.

Suggested Citation

  • Mohamed BELHEDI & Ines SLAMA & Amine LAHIANI, 2015. "Tranmission Of International Shocks To An Emerging Small Open-Economy: Evidence From Tunisia," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 42, pages 231-258.
  • Handle: RePEc:tou:journl:v:42:y:2015:p:231-258
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    INTERNATIONAL TRANSMISION; TUNISIA; ECONOMIC CRISIS; FAVAR MODEL;

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F2 - International Economics - - International Factor Movements and International Business

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