## Broad Money Demand and Monetary Policy in Tunisia

_IMF Working Papers, March 1, 1997_

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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

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### 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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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/broad-money-demand-and-monetary-policy-in-tunisia-2128_