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

Abstract

The presence of money in the economy is mostly considered obvious. This paper investigates the effect of monetization on the Tunisian economy with a Dynamic Stochastic General Equilibrium (DSGE) model. The article also intends to show the main driving forces behind Tunisian business cycle and to understand how the productivity and monetary shocks impact and transmit into the Tunisian economy. Two Small Open Economy Neo-Keynesian (NK) models with price stickiness without and with money are carried out in this study. 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.