The impact of monetization on the Tunisian economy using a simple DSGE model

Document Type : Original Article

Authors

1 Economics, Faculty of Economics and Management of Mahdia, University of Monastir, Tunisia

2 Department Of Development University of Monastir, DEFI ESSECT Tunis, Tunisia.

Abstract

The presence of money in the economy is mostly considered obvious. This chapter investigates the effect of monetization on the Tunisian economy with a Dynamic Stochastic General Equilibrium (DSGE) model. A Neo-Keynesian (NK) model with price stickiness is carried out in this study. The simple model includes households, firms and a monetary authority. The economic model is solved using Matlab Dynare software. At first, this study focuses on a brief history of monetization in Tunisia. Then, it illustrates a simple DSGE model without money and reviews theoretical and empirical studies. Finally, it presents the model with monetization as well as analyzes the findings. The model’s properties are described by impulse response functions of identified structural shocks pertinent to the economy. The results show that the supply shock has a positive effect on the macroeconomic variables. Nevertheless, the monetary shock has negatively affected the variables, especially the output, the capital and wages.

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