Does the Tunisian Central Bank follow an augmented nonlinear Taylor rule?

Nidhal Mgadmi (), Slim Chaouachi (), Wajdi Moussa () and Azza Bejaoui ()
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Nidhal Mgadmi: Management-Mahdia-Tunisia
Slim Chaouachi: Higher Institute of Management of Tunis
Wajdi Moussa: Higher Institute of Management of Tunis
Azza Bejaoui: Management-Mahdia-Tunisia

SN Business & Economics, 2021, vol. 1, issue 1, 1-15

Abstract: Abstract The Tunisian economy was affected by political and financial instability after the 14 January revolution which led to a fall in investment and a rise in the inflation rate. In this paper, we attempt to estimate the nonlinear reaction function of the Tunisian Central Bank (TCB) through modeling the Taylor rule. Needless to say, the Taylor rule is a tool used by the monetary authorities to estimate short-term interest rate when expected inflation rate differs from target inflation rate and expected growth rate of GDP differs from long-term growth rate of GDP. In this paper, we apply STAR model on monthly and quarterly data during the period 2010–2017. Such model enables to take into consideration the asymmetries in the preferences of the TCB in terms of objectives. The empirical results clearly show that the cyclical phenomenon of the Tunisian monetary policy with asymmetrical phases is well-documented. Such asymmetry can be justified by the fact that the TCB shows an unequal aversion towards a recession and an economic expansion or during high inflation and deflation periods.

Keywords: Taylor rule; Monetary policy; Inflation; STAR models; The tunisian revolution (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s43546-020-00032-7

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