Abstract
Empirical evidence suggests that the Taylor rule describing the interest rate setting behavior of four keyMENA central banks (Tunisia, Egypt, Jordon and Morocco) is non-linear. This is achieved using an empirical framework that allows for regime change over time or more specifically the time variance in the model parameters. Using quarterly data from 2000:Q2 to 2014:Q3 to analyze the movement of nominal short-term interest rate of MENA central banks, we find strong evidence that the real decision-making process followed by these central banks varies from one central bank to another and that it exhibits nonlinearity. In particular, considerations about economic growth (for Morocco), inflation (for Jordon), stability of REER rate (in Egypt) and concerns about hitting the zero lower bound of the nominal interest rate (in the cases of Tunisia) seem to be the major drivers of such nonlinear pattern of monetary policy.
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