Effective work of budget rules will allow to weaken the dependence of the nominal exchange rate
dynamics on oil prices in the leading economies of the region and will contribute to the stabilization of the mutual exchange rates of the countries participating in the EDB," said EDB Chief Economist Yaroslav Lisovolik.
The adviser admitted the government's weakness in maintaining real nominal exchange rate
for a long time.
6 per cent is the first step in an incremental policy shift that will extend over several years and is intended to increasingly allow nominal exchange rate
adjustments to reflect changes in terms of trade or in capital flows.
The mission also welcomed the authorities intention to allow the nominal exchange rate
to respond to fundamental shifts in the supply and demand for foreign exchange.
These discrepancies would not have been a continuing issue before monetary union, because nominal exchange rate
tendencies may help out high-inflation countries with competitive readjustment.
A stable nominal exchange rate
of the rupee versus the US dollar had resulted in appreciation of the Real Effective Exchange Rate (REER), which is hurting exports.
1% in 2013, according to a Central Bank of Tunisia (BCT) report on the development of nominal exchange rate
in certain countries.
Therefore the real exchange rate is estimated by an adjustment to the nominal exchange rate
(market exchange rate) taking into account the price ratio of tradable and non-tradable goods.
The nominal exchange rate
data TND/USD are collected from the Central Bank of Tunisia (BCT) (1).
Chart 1 shows the monthly series of Japan's trade balance and the nominal exchange rate
of the yen vis-a-vis the US dollar from January 2010 to December 2014.
Therefore, in contrast to other small open economies in which the central bank intervenes mainly in the domestic bond market to conduct monetary policy while still paying attention to fluctuations in the nominal exchange rate
(as in New Zealand, Australia, and Canada), the MAS intervenes mainly in the foreign exchange market to conduct monetary policy.
I estimate the impact with a vector auto-regressive (VAR) model of the nominal exchange rate
and consumer prices using monthly data since 1998.