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Price inflation and exchange rate pass‐through in Tunisia

Mohamed Ilyes Gritli

African Development Review, 2021, vol. 33, issue 4, 715-728

Abstract: This paper employs a structural vector autoregression model with non‐recursive contemporaneous restrictions to study the exchange rate pass‐through (ERPT) effects on domestic prices in Tunisia for the period January 2000 to February 2019. Thus, we have introduced four blocks that represent the foreign market, domestic goods market, money market and foreign exchange market. The results suggest that the ERPT to import price index (MPI) is large and rapid: 42% in the short run and 60% in the medium run. ERPT to producer price index (PPI) is relatively long and modest: 1% in the short run and 6% in the medium run. ERPT to consumer price index (CPI) is relatively rapid and modest: 3% in the short run and 7% in the medium run. The findings also show that PPI contributes the most to CPI fluctuations, while money supply and the world oil price contribute the most to interest rate variations. This suggests that the Central Bank of Tunisia is trying to indirectly control inflation. Therefore, the phasing out of administered prices should improve the effectiveness of monetary policy.

Date: 2021
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