Time-varying response of treasury yields to monetary policy shocks : evidence from the Tunisian bond market

الملخص EN

This paper examines the Treasury bond yields response to monetary policy shocks in Tunisia under a heterogeneous economic environment.

Using a traditional fixed coefficient model, we first estimate the impact of monetary policy changes on the term structure of interest rates for the whole period from January 2006 to December 2016.

We then study the stability of this relationship by distinguishing two sub-periods around the revolution of January 2011.

To investigate how the relationship between the monetary policy and the Treasury yield curve evolves over time, we estimate a time-varying parameter model.

The results show that the impact of monetary policy is more pronounced at the short end of the yield curve relative to the longer end.

Further, this impact declined significantly across all maturities following the revolution and exhibits wide time variation.

This evidence supports the negative influence of high levels of uncertainty on monetary policy effectiveness and highlights the desirability of more active monetary policy especially in turbulent environment.