Open AccessA Welfare Based Approach for choosing the Inflation Targeting and the Exchange Regime in Tunisia
Author(s) -
Abdelli Soulaima
Publication year - 2014
Publication title -
journal of economics and behavioral studies
Language(s) - English
Resource type - Journals
ISSN - 2220-6140
DOI - 10.22610/jebs.v6i12.550
Subject(s) - economics , inflation targeting , exchange rate , inflation (cosmology) , monetary policy , shock (circulatory) , monetary economics , small open economy , welfare , credibility , real interest rate , exchange rate pass through , index (typography) , interest rate , deadweight loss , open economy , macroeconomics , computer science , medicine , market economy , physics , theoretical physics , law , political science , world wide web
The inflation targeting is considered as an attractive monetary policy strategy in order to handle the inflation rate and improves the credibility of the central bank. The paper provides a stochastic dynamic general equilibrium model with the specificity of employing a small open economy. This model analyzes the impact of different regimes of inflation targeting and exchange rate in Tunisia in terms of the welfare loss and describes some aspects of the Tunisian’s economy. The results displays that the social loss is higher under the managed exchange rate than the flexible exchange rate regime for all the shocks. Then in terms of the inflation targeting index, it demonstrates that the consumer prices index outperforms the domestic inflation except for the productivity shock, in contrast to the result of (Parrado, 2004). Finally the strict is superior to the flexible inflation targeting except with the foreign inflation and the domestic interest rate shock.