Taylor Rule in the Context of Inflation Targeting: The Case of Tunisia

Abstract

The aim of this paper is to determine the optimal Taylor-type rule and the appropriate variables for the Tunisian economy in its conduct of the economic policy. Our starting point is the traditional Taylor rule. The results of the estimation of the reaction function in its static version confirm the hypothesis that Tunisia has been leading an efficient policy to control its inflation. Based on Akaike and Schwarz criteria, the results indicate that the static model better represents the reaction function of the Reserve Bank of Tunisia.