CAN TUNISIA MOVE TO INFLATION TARGETING
Inflation targeting has become an alternative monetary strategy that has been followed by many industrial and emerging countries. This study considers whether the adoption of inflation targeting would be relevant for Tunisia. More specifically, this paper aims at checking whether the necessary conditions for the successful implementation of such a strategy are fulfilled or not. It is found that fiscal dominance does not constitute the main hindrance to the adoption of inflation targeting. Other impediments have been identified, especially a weak financial system in general, the unsound and fragile banking system in particular, and the glaring lack of knowledge about the monetary transmission mechanism. Furthermore, it has been pointed out that if Tunisian monetary authorities continue to carry out the present exchange rate regime, namely, the constant real exchange rate rule, an inflation targeting regime will not be sufficient to properly contain the inflation pressures caused by demand shocks.
Abstract This paper presents a model of investment in six African economies over the 1970s and 80s, paying particular attention to the impact of the policy reforms which have accompanied structural adjustment programmes. A priori, the impact of trade reform on investment can be positive or negative; in practise, there is some evidence that it might be negative.