Is the Tunisian Central Bank following a Linear or a Nonlinear Augmented Taylor Rule?

Beldi Lamia and Mouldi Djelassi
Additional contact information
Beldi Lamia: Faculty of Economic Sciences and Management of Tunis, University of Tunis El-Manar, Tunisia
Mouldi Djelassi: DEFI and ESSECT, University of Tunis, Tunisia/Associate Researcher at LEO, University of Orleans, Orl ans, France.

International Journal of Economics and Financial Issues, 2020, vol. 10, issue 3, 69-78

Abstract: The political transition in the Arab Spring countries has been accompanied by a deterioration of economic and financial indicators like in the Tunisian case. This paper aims to get a deeper understanding of the nature of the rule that reflects the behavior of the Tunisian monetary authority in the current dominance of economic and financial instability. In particular, this paper assesses whether the Tunisian Central Bank is indeed following a linear or a non linear augmented Taylor rule. For our purpose, we use a forward looking version of Taylor rule augmented by including the effect of exchange rate to estimate the linear and the nonlinear models. A smooth transition regression model is used to estimate the nonlinear rule. The results obtained imply that the Tunisian Central Bank follows a nonlinear Taylor rule in the conduct of monetary policy. In addition, our evidence suggests that the reaction of monetary authority in Tunisia to the deviation of forecasts of inflation rate, output gap and exchange rate changes in terms of magnitude and statistical significance across the high and low interest rate regimes. In particular, when the lagged interest rate is above the threshold level of 4.76%, the main objective of the policy makers is to fight the inflation rate and to limit the depreciation of exchange rate rather than to boost the economic activity.

Keywords: Taylor rule; smooth transition regression model; interest rate reaction function; nonlinearity (search for similar items in EconPapers)
JEL-codes: C22 E17 E43 E52 E58 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econjournals.com/index.php/ijefi/article/download/8975/pdf (application/pdf)
https://www.econjournals.com/index.php/ijefi/article/view/8975/pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2020-03-9

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().