Nonlinear Monetary Policy Rules: An Essay in the Comparative Study on Egyptian and Tunisian Central Banks

Yosra Baaziz and Moez Labidi
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Yosra Baaziz: Monnaie Modélisation Financement Développement (MOFID), University of Sousse, Sousse 4003, Tunisia
Moez Labidi: Monnaie Modélisation Financement Développement (MOFID), University of Sousse, Sousse 4003, Tunisia

Economies, 2016, vol. 4, issue 2, 1-18

Abstract: The purpose of this paper is to evaluate the behavior of monetary authorities in Tunisia and Egypt, in response to changes in macroeconomic variables over time based on LSTR model. In this sense, we estimate Taylor-type equations for short-term interest rate in Tunisia and Egypt using quarterly data covering the period 1998.Q4–2013.Q2. We find strong evidence that the real decision-making process followed by these central banks varies from one central bank to another and that it exhibits nonlinear patterns that better capture special events and unexpected contingencies i.e. , the terrorist attack in the US in September 2001, the global financial crisis in 2008, and the effect of political instability with the onset of the revolution. Additionally, the presence of asymmetries in the reaction function of the Tunisian and Egyptian Bank requires disconnection from their automatic pilot rules and use of judgement to make decisions.

Keywords: policy rule; central bank; exchange rate; Taylor rule; nonlinearity (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2016
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