The Role of Fiscal and Monetary Policy in Addressing Inflation in the Tunisian Economy

Abstract: This study investigates the effectiveness of fiscal and monetary policy tools in controlling inflation in Tunisia over the period 1990–2024. Using the ARDL (Autoregressive Distributed Lag) model and EViews 12 for empirical analysis, the study explores both short-run and long-run dynamics between inflation (measured by the Consumer Price Index) and a set of key macroeconomic indicators, including the deposit interest rate, official exchange rate, oil revenues, GDP per capita, and total national expenditure. Results from the Unrestricted Error Correction Model (UECM) confirm the existence of a short-run self-correction mechanism, with about 47.7% of disequilibrium being corrected each period. The deposit interest rate exhibits a significant positive effect on inflation in both the short and long run, indicating that monetary policy actions, particularly interest rate adjustments, play a central role in shaping price behavior. Conversely, GDP per capita shows a negative but statistically weak long-term relationship with inflation, suggesting limited influence. Other fiscal indicators, such as oil revenues and public expenditure, appear to have unstable or insignificant effects. These findings highlight the complex interplay between macroeconomic variables and inflation, reinforcing the need for coordinated fiscal and monetary strategies, improved spending efficiency, and structural reforms to stabilize prices and enhance economic resilience.