The determinants of EURO/TND exchange rate volatility in Tunisia

Nadia Dridi () and Fathi Ayachi ()
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Nadia Dridi: High School of Economics and Commerce of Tunis
Fathi Ayachi: High School of Economics and Commerce of Tunis

Economics Bulletin, 2022, vol. 42, issue 4, 1981 - 1997

Abstract: This paper aims to study the different determinants of nominal exchange rate volatility of the Tunisian Dinar (TND) against the Euro (EURO), principal money of the commercial and financial partners of Tunisia and, particularly, the most volatile money relative to other international currencies as Dollar. We used monthly data from January 2006 to March 2016. In this study, EURO/TND exchange rate volatility is measured employing EGARCH (1,1) approach. For this purpose, we identify relevant variables that influence exchange rate volatility (net assets in foreign currency, current account, debt service average ratio, average money market interest rate, consumer price index family, Tunindex ) which were included in our model estimation. The cointegration analysis reveals the presence of a long-run equilibrium relationship between exchange rate volatility and its various determinants and shows that only the current account and debt service ratio have significant negative effects on exchange rate volatility during the study period. At the short-run, the VECM indicate the presence of positive significant relationship among all the explanatory variables and exchange rate volatility with exception of average money market interest rate that has a significant negative effect.

Keywords: Exchange Rate Volatility; EGARCH; Cointegration; VECM; Impulse- Response Functions and Variance Decomposition Analysis. (search for similar items in EconPapers)
JEL-codes: F4 G1 (search for similar items in EconPapers)
Date: 2022-12-30
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