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Credibility of Inflation Targeting in Morocco and Tunisia


  • Adel Boughrara

    () (University of Sousse, Tunisia)

  • Mongi Boughzala

    () (University of Tunis ElManar, Tunisia)

  • Hassouna Moussa

    (Acadia University, Canada)


Can the Moroccan and the Tunisian financial systems withstand the consequences of adopting IT, and is IT the appropriate monetary policy for them? There are many crucial requirements for the success of IT including independence of the central bank, fiscal discipline, a flexible exchange rate, and a strong and transparent financial system. Most of these requirements are actually important for any sound monetary policy. Not all of them are readily fulfilled in Morocco and Tunisia, some may be achieved gradually, eventually over a transition period, but there are some crucial prerequisite conditions that are not fulfilled. Absence of fiscal and financial dominance is one of them, and there are many other features not consistent with IT. We argue that, in spite of the many reforms they implemented Morocco and Tunisia fiscal and financial systems are not yet adequate for IT; in particular, the NPL problem undermines their effectiveness. The success of IT also depends on some institutional conditions that seem currently hard to meet, namely the government ability and willingness to establish a credible system ensuring fiscal and monetary discipline and central bank independence. Under the current conditions the government and the monetary authority may be reluctant to move to IT. The paper also presents a fairly simple dynamic simulation model taking into account some basic and specific features of the Moroccan and Tunisian systems. The simulations show that IT under the fragile current system may destabilize the economy and the target is likely to be missed when important exogenous (eventually external) shocks occur.

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  • Adel Boughrara & Mongi Boughzala & Hassouna Moussa, 2008. "Credibility of Inflation Targeting in Morocco and Tunisia," Working Papers 448, Economic Research Forum, revised 09 Jan 2008.
  • Handle: RePEc:erg:wpaper:448

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    References listed on IDEAS

    1. Svensson, Lars E. O., 2002. "Inflation targeting: Should it be modeled as an instrument rule or a targeting rule?," European Economic Review, Elsevier, vol. 46(4-5), pages 771-780, May.
    2. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-397, May.
    3. Frederic S. Mishkin, 2002. "Does inflation targeting matter? - commentary," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 149-154.
    4. G. C. Lim & Guy Debelle, 1998. "Preliminary Considerations of an Inflation Targeting Framework for the Philippines," IMF Working Papers 98/39, International Monetary Fund.
    5. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
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