The Relationship Between Public Debt, Economic Growth, and Monetary Policy: Empirical Evidence from Tunisia

This paper aims to examine the relationship between public debt, economic growth, and monetary policy in Tunisia. We study the contribution of fiscal shocks through public debt on monetary policy and on macroeconomic dynamics using the SVECM model and Granger causality over the period 2002–2013. Econometric analysis results indicate that public debt, monetary policy, and economic activity are interdependent. The causality approach showed a bidirectional causality relationship between public debt, economic growth and monetary policy. This study shows that monetary and fiscal policies affect real activity, inflation, and exchange rate in Tunisia. The conflicts between the objectives of fiscal and monetary authorities explain the high rate of inflation and the decline in activity.