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The Credit Channel Transmission of Monetary Policy in Tunisia

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  • Mna, Ali
  • Younsi, Moheddine

Abstract

The purpose of this paper is to evaluate the importance of the credit channel in the monetary policy transmission mechanism in Tunisia. Using a VAR approach, we attempt to empirically examine the responses of the main aggregates of the Tunisian economy to monetary policy shocks over the period 1965-2015. Our empirical results showed that credit has a significant effect on investment and inflation. Indeed, the cointegration relationship, coupled with the weak exogeneity test, shows that credit is an endogenous variable and therefore the long-term equation found is a credit equation. The crucial role of credit channel is argued by the goal of price stability expected by any monetary policy. The analysis of monetary shocks shows the importance of exchange rate policy and the local currency devaluation on the financing mode. It is observed that Tunisian economy is dominated by external conditions. This dominance is confirmed by extensive using of external debts and trade agreements with the dominant countries. Ultimately, our findings suggest that policymakers should act on the level of economic activity and inflation, on two terms. The first is in short-run, by acting on the interest rate and the second is in long-run, by controlling the exchange rate.

Suggested Citation

  • Mna, Ali & Younsi, Moheddine, 2017. "The Credit Channel Transmission of Monetary Policy in Tunisia," MPRA Paper 83519, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:83519
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    File URL: https://mpra.ub.uni-muenchen.de/83519/1/MPRA_paper_83519.pdf
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    References listed on IDEAS

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    1. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    2. Frederic S. Mishkin, 2011. "Monetary Policy Strategy: Lessons from the Crisis," NBER Working Papers 16755, National Bureau of Economic Research, Inc.
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    4. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    5. Vasco Curdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 3-35, September.
    6. Olivier Paquier, 1994. "Les effets de la politique monétaire sur l'activité passent-ils par le canal du crédit ?," Revue Française d'Économie, Programme National Persée, vol. 9(2), pages 71-104.
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    9. Bouvet, Patrice, 1996. "Les théoriciens contemporains de la monnaie endogène : consensus et désaccords," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(4), pages 451-470, décembre.
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    More about this item

    Keywords

    Credit channel; monetary policy transmission; VAR approach; impulse analysis; monetary shocks;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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