Dynamic Links between Exchange Rate, Inflation and Economic Growth in Tunisia

Abstract

This paper investigates the dynamic links between the exchange rate (T), the inflation (I) and the economic growth measured by (GDP) in Tunisia, using annual data during the period 1998–2014.  First, we implement unit root analysis to test the stationary. The study makes use of both primary and secondary data and VAR Granger Causality/Block Exogeneity Wald Tests was adopted as the estimation techniques. Granger causality results reveal that there is a bidirectional causal link between the inflation and economic growth and a unidirectional causal link running from the inflation to the exchange rate. This study provides some implications regarding potential constraints on monetary policy.