10 Apr 2012

The role of monetary policies and macroeconomic convergence

in the development of financial systems in south Mediterranean countries

Sami Mouley

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This MEDPRO Technical Report shows that the monetary and exchange rate policies conducted by central banks in the south Mediterranean region display apparent homogeneity in their operational frameworks, albeit with some specificities and differing degrees of advancement. While central banks state that price stability is their ultimate objective, failures to control interest rates as operational objectives of monetary policy result in monetary authorities resorting to quantitative approaches to monetary policy, meaning that monetary aggregates and credit targets are being used as intermediate targets of monetary policy.

An econometric exercise limited to Maghreb countries (Algeria, Morocco, and Tunisia) has been conducted to analyse the potential scenarios of convergence and monetary policy coordination. Given the high structural heterogeneity and the slow pace of real convergence due to weak commercial integration in the Maghreb, results nevertheless show alternative dynamics in the integration of effective nominal exchange rates, as well as a complete convergence dynamic in exchange rate policies. Partial convergence of monetary policies regarding the stabilisation of inflation rates remains an open option for a transitional phase where financial integration is low.

The report is in French with Executive Summaries in English and French.

Author Sami Mouley, is Professor at the University of Tunis and the Institut Tunisien de la Compétitivité & des Etudes Quantitatives – ITCEQ.

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