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? The adoption by Tunisia of structural reforms of its economy in a context of gradual opening since 1986, had allowed the instauration in January 1993 of the convertibility of its current account. The total convertibility of the Tunisian Dinar remains a top priority in the immediate future like finality of a more close integration of the Tunisian economy to the world economy. The capital account liberalization in Tunisia poses the problematic of the prospective choice of its appropriate exchange rate regime. 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.