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Financial stability and monetary policy rules: evidence from Tunisia

Author

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  • Dorra TURKI

    (University of Sfax, Tunisia)

  • Rima LAJNAF

    (University of Sfax, Tunisia)

Abstract

This paper aims to identify the role of monetary policy in ensuring not only price stability but also financial stability for the central bank of Tunisia. We employ the generalized method of moments on quarterly data during the period 2000-2020 for the Tunisian context to estimate various types of monetary policy rules. We compare the standard Taylor rule with the augmented version that incorporates non-performing loans as a financial variable. Our findings indicate a significant and positive impact of this variable on the monetary policy reaction function. Furthermore, our analysis highlights the ability of monetary policy to effectively balance the trade-off between its dual objectives of price and financial stability.

Suggested Citation

  • Dorra TURKI & Rima LAJNAF, 2024. "Financial stability and monetary policy rules: evidence from Tunisia," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(640), A), pages 61-68, Autumn.
    • Handle: RePEc:agr:journl:v:xxxi:y:2024:i:3(640):p:61-68
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