Money Supply, Inflation, and Industrial Production Dynamics in Tunisia: A Time-Series Analysis

Abstract

Money supply, inflation, and industrial production are important indicators of monetary conditions and economic performance in Tunisia. This study examined historical trends, contemporaneous associations, and short-run predictive relationships among these variables using 108 quarterly observations from 1994 Q1 to 2020 Q4. Descriptive statistics, Pearson correlations, 16-quarter rolling correlations, and Augmented Dickey–Fuller stationarity tests were performed. A four-lag vector autoregressive (VAR) model incorporating the money-market interest rate was estimated using first-differenced series, followed by Granger causality tests and model diagnostics. Average annual M2 growth, inflation, and industrial production growth were 9.95%, 4.02%, and 1.12%, respectively. M2 growth showed a weak negative correlation with inflation (r = −0.231) and a weak positive correlation with industrial production growth (r = 0.116). Inflation and industrial production growth were weakly negatively correlated (r = −0.255). Rolling correlations varied considerably over time, indicating unstable relationships among the variables. Interest-rate changes significantly predicted M2-growth changes (p = 0.0036), whereas M2-growth changes did not significantly predict inflation or industrial production changes. The findings indicate time-varying monetary and industrial relationships in Tunisia, without significant short-run predictive effects of M2 growth on inflation or industrial production. Non-normal model residuals warrant cautious interpretation of these findings.