Economic Challenges and Opportunities after the Revolution in Tunisia: Inflation and Exchange Rate

Abstract

The African Development Bank Group suggest that structural challenges are needed to moving up the value chain through structural shift of the manufacturing sector and the liberalization of the domestic private sector from the dual economy. However, exchange rates and capital accounts are still under the strict control of the Central Bank, even though exceptions are accorded to export-related activities. The public sector dominates all the strategic sectors in the economy (e.g., energy, transport, telecommunications, pharmacy, collection and trade of basic food, etc.) and basic commodities prices are controlled by the government (which represents one third of the CPI). Therefore, it is crucial to assess the response of domestic prices to the exchange rate pass-through, given its important implications for monetary policy [4]. The pass-through measures the effect of a nominal exchange rate change on prices across fluctuations in the prices of imported 2 Accordingly the increased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers; and increased accountability of the central bank for attaining its inflation objectives. Economic Challenges and Opportunities after the Revolution in Tunisia: Inflation and Exchange RateLoukil S* Department of Management, Sfax University, Tunisia AbstractThis paper investigates the dynamic links between the exchange rate and the inflation in Tunisia, using annual data during the period 1984-2016. First, we implement unit root analysis to test the stationary. The study makes use of both primary and secondary data and VAR Granger Causality/Block Erogeneity Wald Tests were adopted as the estimation techniques. Granger causality results reveal that there is a unidirectional causal link between the inflation and exchange running from the inflation to the exchange rate and that the exchange rate has no impact on inflation. This study provides some implications regarding potential constraints on monetary policy. A policy of inflation targeting, as an alternative monetary policy, combined with a compatible regime of flexible exchange rates could provide a solution to this dilemma.

Causality Between Exchange Rates, Economic Growth and Inflation in Indonesia

“…Several previous studies and theories say that exchange rates, inflation, and economic growth have a causal relationship. The study by Loukil (2017) concluded that there is a unidirectional causal relationship between inflation and the exchange rate in Tunisia. Lado's (2015) research found that there is a two-way causality between inflation and exchange rates in South Sudan.…”