Exchange rate pass-through to domestic prices in Tunisia: a short- and long-run analysis

Abstract

This study analyzes the impact of the exchange rate fluctuations in the short and long-runs in Tunisia under a pure commitment policy through two channels. The first is the Structural Vector Autoregression used to analyze the short run effects of the exchange rate on the industrial production index and on the consumer and import price indexes. The second is the Vector Error Correction Model used to examine the long run dynamic effects of the exchange rate upon the same variables relying on Tunisian monthly data during the period January 1993 to June 2011. Unlike several empirical studies, which show that the impact of the exchange rate movements on prices has been reduced over the past few years in the industrialized countries, the exchange rate is found to be a potential source not only of production but also of inflation reduction in Tunisia. Indeed, the direct channel of the exchange rate seems to have a significant impact on production and inflation in the long-run, whereas the indirect one has no effect on the money supply. These results strongly support the monetary policy of the central bank targeting the exchange rate because there is a strong correlation between this rate and prices.

Modelling Inflation Dynamics and Global Oil Price Shocks in OAPEC Countries: TVP-VAR

“…From 1990 to 2018, global oil prices experienced significant volatility, including notable price increases during this period, which affected the prices of not only energy-related products but also other goods and services that rely on oil as an input or transportation. This pass-through effect led to a broad-based increase in prices across the economy, resulting in higher inflation (as demonstrated by Jbir and Zouari-Ghorbel, 2009;Guenichi and Benamou, 2010;Helali and Kalai, 2015;El-Hamiani, 2018). A relative decrease in the impact of oil prices on inflation from 2019 to 2022 can be attributed to several factors as suggested by Gritli (2021) and El-Hamiani et al (2020): monetary policy measures; government subsidies; demand-supply dynamics; and structural reforms.…”

The Nature of Inflation-Growth Nexus in Tunisia: Empirical Study With Ardl Approach

“…Our results show that the exchange has an indirect and negative effect on economic growth and this direct effect is transmitted to prices in short and long-run. In other words, the short-and long-term effects of the exchange rate on economic growth and prices have shown that through import prices, the strong effect of the transmission of the exchange rate is reflected in the first step on domestic prices, that is to say that the depreciation of the domestic currency generates an increase in the price level which subsequently influences economic growth in Tunisia (Helali & Kalai 2015).…”

Smooth transition regression model relating inflation to economic growth in Tunisia

“…Then, since the January 2011 revolution, the fragile economic situation and high inflation rates led to a weak mobilization of deposits and several Tunisian banks found themselves in a situation of insufficient liquidity and increasing dependence on direct refinancing by the Central Bank of Tunisia (IMF National Report, 2015;Helali & Kalai, 2015;Helali, 2020;Helali et al, 2021) which prompted the CBT to decrease its nominal rate by 100 basis points, from 4.5% to 3.5% with the reduction of the required reserve ratio of commercial banks from 12% to 2% and giving 2.6 billion dollars to commercial banks to boost liquidity (Matta et al, 2019). The aim was to reduce the financial burden on companies, especially those affected by the effects of the political crisis, and to increase the liquidity of financial intermediation.…”