INCOMPLETE EXCHANGE RATE PASS-THROUGH TRANSMISSION TO PRICES: AN SVAR MODEL FOR TUNISIA

Abstract

In this paper, we tried to revisit the transmission degree of exchange rate variations to domestic prices (import prices, MPI; producer prices, PPI; and consumer prices, CPI) in Tunisia. To do this, we used the VAR–SVAR methodology, over the 2000:1–2013:12 period. The adopted mode is gathering national prices, nominal exchange rates, foreign prices and a control variable that is the interest rate. The findings highlights that the pass-through is incomplete for all considered prices. However, the degree of the exchange rate pass-through is the highest on import prices, is moderate on producer prices and is the lowest on consumer prices. Besides, the incomplete pass-through of MPI results from the pricing to market behavior and the lowest pass-through for CPI is due basically to the composition of this index which is administrated by 30% of its components. The impulse response functions analysis, that largely corroborates to the variance decomposition, shows that when the central bank conducts a restrictive monetary policy the inflation decreases without widening the output gap.