Oil Price Shocks, Monetary Policy and Aggregate Demand in Tunisia
Résumé
The current study examines the relationship between the world oil price and aggregate
demand in a developing country, Tunisia, via the interest rate channel by means of
univariate and multivariate cointegration analysis with multiple structural changes.
Results of the study indicate that oil price, by impacting the price level positively,
negatively impacts real output. The results also indicate that monetary policy is initially
eased in response to a surge in the price of oil in order to lessen any growth
consequences, but at the cost of higher inflation. The ensuing higher inflation, however,
prompts a subsequent tightening of monetary policy leading to a further decline in
output. In addition, output does not revert quickly to its initial level after an oil price
shock, but declines over an extended period.