THE CREDIT CHANNEL TRANSMISSION OF MONETARY POLICY IN TUNISIA
Abstract
The purpose of this paper is to evaluate the importance of the credit channel in the monetary policy transmission mechanism in Tunisia. Using a VAR approach, we attempt to empirically examine the responses of the major aggregates of the Tunisian economy to monetary policy shocks over the period 1965-2015. Our empirical results show that credit has a significant effect on investment and inflation. The cointegration relationship coupled with the weak erogeneity test shows that credit is an endogenous variable and therefore the long-term equation found is a credit equation. The crucial role of credit channel is argued by the goal of price stability expected by any monetary policy. The analysis of monetary shocks shows the importance of exchange rate policy and the local currency devaluation on the financing mode. It is seen that Tunisian economy is dominated by external conditions. This dominance is confirmed by extensive using of external debts and trade agreements with the dominant countries. The main findings suggest that policymakers should act on the level of economic activity and inflation, on two terms. The first is in short-term by acting on the interest rate and the second is in long-term by controlling the exchange rate.
References
[2] Bayangos, V.B. 2010. Does the Bank Credit Channel of Monetary Policy Matter in the Philippines? https://www.bis.org/repofficepubl/arpresearch201003.12.pdf
[3] Bernanke, B.S., and Blinder, A.S. 1988. Credit, Money an Aggregate Demand. The American Economic Review, 78(2): 435-439.
[4] Bernanke, B.S., and Blinder, A.S. 1992. The Federal Funds Rate and the Channels of Monetary Transmission. The American Economic Review, 82(4): 901-921.
[5] Blinder, A.S. 1987. Credit Rationing and Effective Supply Failures. The Economic Journal, 97(386): 327-352.
[6] Bouvet, P. 1996. Les théoriciens contemporains de la monnaie endogène : consensus et désaccords. L'Actualité économique, 72(4): 451-470.
[7] Curdia, V., and Woodford, M. 2010. Credit Spreads and Monetary Policy. Journal of Money Credit and Banking, 42(s1): 3-35.
[8] Davidson, P. 1988. Endogenous Money, the Production Process and Inflation Analysis. Economie Appliquée, 41(1): 151-169.
[9] Davidson, P. 1992. Money: Cause or Effect? Exogenous or Endogenous? In E.J. Nell and W. Semmler (eds), Nicholas Kaldor and Mainstream Economics. London: Macmillan: 243-258.
[10] Eric Berr. 1999. Demande effective, monnaie et prix de production : une extension circuitiste de la théorie générale. 51ème congrès de l’Association Internationale des Economistes de Langue Française, Marrakech, 31 mai-02 juin.
[11] Estenson, P.S. 1992. The Keynesian Theory of the Price Level: An Econometric Evaluation Using a Vector Autoregression Model. Journal of Post Keynesian Economics, 14(4): 547-560.
[12] Ferreria, C. 2009. The Credit Channel Transmission of Monetary Policy in the European Union. WP 08/2009/DE/UECE.
[13] Goux, J. F. 1996. Le canal étroit du crédit en France: Essai de vérification macro-économique 1970-1994. Revue d’Économie Politique, 106(4): 655-681.
[14] Ioannidou, V., Ongena, S., and Peydrò, J. 2009. Monetary Policy and Subprime Lending: A Tall Table of Low Federal Funds Rates, Hazardous Loans and Reduced Loan Spreads. European Banking Centre Discussion Paper No. 2009-04S. Tilburg University. ECB.
[15] Jordan, T. 1999. The Information Content of Bank Credit for Forecasting Output and Prices: Results from Switzerland. Swiss National Bank, unpublished working paper.
[16] Kalt, D. 2001. The Credit Channel as a Monetary Transmission Mechanism: Some Microeconometric Evidence for Switzerland. Swiss Journal of Economics and Statistics, 137(4): 555-578.
[17] Keynes, J. M. 1936. The General Theory of Employment, Interest and Money. London: Harcourt Brace.
[18] Laumas, P. S. 1980. Some evidence of Keynes' finance motive. Journal of Development Economics, 7(1): 123-126.
[19] Lavoie, M. 1984. The Endogenous Flow of Credit and the Post-Keynesian Theory of Money. Journal of Economic Issues, 18(3): 771-797.
[20] Mathias, Z. 2005. Credit in the Monetary Transmission Mechanism: An Overview of Some Recent Research Using Swiss Data. Swiss National Bank Economic Studies No. 2005-1.
[21] Mishkin, F. S. 2011. Monetary Policy Strategy: Lessons from the Crisis. NBER Working Paper No. 16755.
[22] Natal, J. M. 2003. The Credit Channel in Switzerland: Empirical Evidence Using a (B) SVAR. Swiss National Bank, unpublished working paper.
[23] Natke, P. A. 1997. Keynes' Finance Motive and Firm Behavior: Empirical Evidence. Journal of Post Keynesian Economics, 20(2): 275-294.
[24] Natke, P. A. 2001. The firm demand for liquid assets in an inflationary environment. Applied Economics, 33(4): 427-436.
[25] Paquier, O. 1994. Les effets de la politique monétaire sur l'activité passent-ils par le canal du crédit? Revue Française d'Economie, 9(2): 71-104.
[26] Payelle, N. 1996. Bank Lending Channel and Bank Portfolio Management: An Empirical Approach in the French Case. Revue d’Economie Politique, 106(4): 683-703.
[27] Rochon, L. P. 1999. Credit, Money and Production: An Alternative Post-Keynesian Approach. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
[28] Smant, D. 2002. Bank Credit in the Transmission of Monetary Policy: A Critical Review of the Issues and Evidence. MPRA Paper No. 19816.
[29] Stephen, D. O., and Glenn, D. R. 1996. Is There a Broad Credit Channel for Monetary Policy? Federal Reserve Bank of San Francisco Economic Review, 1: 3-13.
[30] White, W. R. 2009. Should Monetary Policy ‘Lean or Clean’? Globalization and Monetary Policy Institute Working Paper No. 34. Federal Reserve Bank of Dallas.
[31] Wray, L. R. 1991. Alternatives approaches to Money and Interest Rates. Journal of Economics Issues, 26(4): 1145-1178.
Non-Exclusive License under Attribution 4.0 International Public License (CC BY 4.0):
This ‘Article’ is distributed under the terms of the license CC-BY 4.0., which lets others distribute, remix, adapt, and build upon this article, even commercially, as long as they credit this article for the original creation. ASERS Publishing will be acknowledged as the first publisher of the Article and a link to the appropriate bibliographic citation (authors, article title, volume issue, page numbers, DOI, and the link to the Published Article on ASERS Publishing’ Platform) must be maintained.