Monetary policy and financial stability: empirical evidence from South Mediterranean countries

Abstract

This article examines the relationship between monetary policy and financial stability, in the experience of six
south Mediterranean countries (Tunisia, Morocco, Egypt, Lebanon, Jordan and Turkey) over the period 2006M1-
2013M12. This research analyze the role of monetary policy to contribute to financial stability using a structural
vector Auto-regressive model .our empirical results show that the effectiveness of short –term interest rates in
affecting selected asset prices depends on the strategy of monetary policy . For countries that adopt a flexible
exchange rate regime (Tunisia, Marocco, Egypt and Turkey), the interest rate is conducive to financial stability.
But, countries that adopt a fixed exchange rate regime (Jordan and Lebanon), the interest rate is not an effective
tool for promoting financial stability.