Inflation and Real Measure of Central Bank Independence in Tunisia

Abstract

The purpose of this paper is to detect the causes of inflation in Tunisia and to verify the existence of a causal relationship between central bank independence and inflation. Thus, we proved, using an ARDL model, that inflation in Tunisia is essentially explained by the variation of exchange rates, the turnover of the central bank governor, the credits granted to the private sector and the variation of interest rates which exerts a perverse effect. In this context, the analysis of inflation in Tunisia has allowed us to show that this phenomenon cannot be explained solely by monetary variables. Moreover, we have highlighted the existence of a positive impact of interest rates on inflation. In addition, we have detected a new cause of inflation in Tunisia which is imports. This variable positively affects inflation in the long run. These results show that inflation in Tunisia is essentially a monetary and demand inflation in the short run. In the long run, inflation is also the result of structural factors that can be represented either by structural imbalances in the different markets, or by problems related to the quality of institutions or corruption.