CAPITAL ACCOUNT LIBERALIZATION AND EXCHANGE RATE REGIME CHOICE, WHAT SCOPE FOR FLEXIBILITY IN TUNISIA?

Capital account liberalization and exchange rate regime choice, what scope for flexibility in Tunisia? This study evaluates within a game-theoretic framework the exchange rate regime from a welfare perspective. In a tradable-nontradable goods model framework, Tunisia’s exchange rate regime choice is cast in terms of strategic interactions between the monetary authority and domestic enterprises. The monetary authority is assumed to choose an optimal exchange rate regime according to a welfare-related criterion by minimising a loss function defined in terms of external competitiveness and domestic inflation. Simulations outcomes reveal that capital account liberalization in the Tunisian economic context is compatible with a flexible exchange rate regime.