Broad Money Demand and Monetary Policy in Tunisia

IMF Working Papers, March 1, 1997

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Broad Money Demand and Monetary Policy in Tunisia

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Bibliographic details

• Authors: Volker Treichel
• Published: March 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451921250.001

Summary

• Central concern: the development of empirical foundations to the conduct of monetary policy in Tunisia.
• Main conclusions:
  • Stable money demand functions are found.
  • The findings broadly corroborate the choice of monetary aggregates as intermediate targets of monetary policy by the Tunisian Central Bank.
  • The paper finds a lower income elasticity than the one currently applied by the Central Bank and proposes a different methodology for defining monetary growth targets.
  • Both interest rates and reserve money are feasible operating targets.
  • Suggestion that the Central Bank orients its monetary policy more towards transparent operating targets.

Key findings and analysis

• Existence of stable money demand functions supports use of monetary aggregates (e.g., monetary aggregate M2) as intermediate targets.
• Estimated income elasticity of money demand is lower than the elasticity currently applied by the Tunisian Central Bank (paper does not state the numerical elasticities on the landing page).
• Methodological proposal: adopt a different methodology for defining monetary growth targets consistent with the lower estimated income elasticity.
• Operational targets: both interest rates (T-bill rate) and reserve money are identified as feasible operating targets for the Central Bank.

Policy recommendations

• Reassess the income elasticity parameter used to convert nominal GDP projections into monetary growth targets, reflecting the paper’s lower estimated income elasticity.
• Consider defining monetary growth targets using the alternative methodology proposed in the paper (details in full paper).
• Orient monetary policy implementation toward more transparent operating targets, using either interest rate instruments or reserve money.

Subjects and keywords

• Subjects: Banking, Demand for money, Financial institutions, Monetary aggregates, Monetary base, Money, National accounts, Personal income, Treasury bills and bonds
• Keywords: Asia and Pacific, Demand for money, inflation rate, interest rate target, Maghreb, monetary aggregate M2, Monetary aggregates, Monetary base, money demand, money demand function, Personal income, T-bill rate, targeted monetary aggregate, treasury bill, Treasury bills and bonds, WP

Broad Money Demand and Monetary Policy in Tunisia, IMF Working Papers 1997/022. DOI: https://doi.org/10.5089/9781451921250.001

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• Broad Money Demand and Monetary Policy in Tunisia - WP/97/22
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