Subprime Mortgage Crisis and the Exchange Rate Channel: Evidence from Six Countries of the Zone Euro-Med

This article proposes to assess the impact of the subprime mortgage crisis on the exchange rate channel in 6 countries of the Euro-Med zone. To do this, our analysis is based on three evaluation methods that allow us to conclude that the exchange rate channel is better evaluated by the non-linear approach of the countries studied. Thus, the depreciation of the exchange rate adopted by the countries of the Med zone did worse macroeconomic stability and economic convergence.


Introduction
The financial crisis of the subprime has shocked the whole world for almost seven years. The magnitude and urgency of this crisis have taken a few States across the world by surprise. In order to remedy the deterioration of the economic situation of not bad savings, some economies have taken precautionary measures by the adoption of macro prudential policies for economic recovery. In addition, it may also be noted the attempt to massive injection of funds to bail out the financial systems of some of the countries of the euro area.
Despite these attempts, a crisis of confidence without precedent shakes up to present the world economy. The international market is also marked by the financial globalization on the one hand and the debt crisis in the euro area. On the other hand, Greece was the first to dive in this crisis of the countries of the zone The third section considers a non-linear model to settings in the variables in the time in order to benefit from a more rigorous analysis of the impact of the crisis on the channel of the exchange rate in a context of financial instability.

First Method of Evaluation
Effects of the monetary policy differ from one country to another for various reasons. We are interested at the time of our research to identify specificities of the transmission channels of exchange rate of the monetary policy in the case of six countries of the zone Euro-Med like Tunisia, Egypt, Italy, Portugal, Greece and Spain.

Identification of Structural Model VECM
The models (VAR) became increasingly popular since the criticism of [1] brought to the approach of the simultaneous equations.
However, the form standard VAR is a reduced form of the model and the economic interpretation of the results is often impossible, unless the reduced form of the VAR dependent on the economic model.
When the economic theory provides a link between the errors envisaged and the fundamental shocks, the model which results from it calls a SVAR. However, the models of this kind are regarded as an important tool in the economy and are used to analyze certain effects by which we can quote the effects of the mon- The analysis of the structural VECM begins starting from the reduced form of the standard model VAR (p) The model VAR has a specific presentation of vector with correction of error noted by VECM (p).
In the cointegrated models, Π has a reduced rank which does not exceed K We are interested in the effects of fundamental shock t ε in the system of variables t y . These shocks can be expressed in term of structural VECM form.
With t ε a vector of dimension ( 1 K × ) containing the unobservable structural disorders and variance covariance ε Σ . In order to quantify the responses to economic shocks t ε , it must link errors in structural shocks t ε .
Multiplying the above equation by 1 K − , we get the reduced form with To analyze the effect of the structural shocks, we will need to identify 2 K the elements of 0 A . Thus, we will have interest to identify the restrictions on economic theory. To do this, we use the following relationship: The SVECM model can be used to identify shocks by imposing restrictions on the matrix A of long term and the matrix B of short term. The matrix B is as t t u Bε = and long term matrix is as follows: However, the shock ε of long term effect is given by: B Ξ of row K − r; ( ) Ξ can have at most vectors r column zero. However, we can have r transitory shocks and at least k* = (K − r) permanent shocks. Given the reduced matrix rank, each column zero vector is K* independent re-

Data Presentation and Processing
In this paper, we are going to use a structural VECM model on monthly data

Results of the Impulse Responses
We are interested in a first time to identify the responses of objective variables, the exchange rate, exports and imports as a result of a shock of monetary policy.
Subsequently, we observe the responses of a shock of the exchange rate on the whole of the variables of the model in order to detect the impact of the change in the exchange rate on the latter. An overall look on the response functions of all the systems of the four countries of the euro area explored in Appendix A highlights some important lessons learned from Figures 1-10. First of all, if we rely on only estimates having recourse to the index of production, our estimates come in the whole confirm a result replied extensively in the literature, namely the modest contribution of the canal of the rate of interest. In a flexible exchange rate regime, the effects of the interest rate channel are amplified by the channel of the exchange rate because the increase in the rate of interest causes a real appreciation of the exchange rate harmful to the external competitiveness. It is essential to indicate that we use the exchange rate quoted to the uncertain, in other words: 1 dollar for our case for Z units of the currency of the country considered (TND, Egyptian Pounds or Euro).
Therefore, when the exchange rate is increasing (resp. decreases), this means that the currency of the country considered depreciates (resp. appreciates). On the other hand, and in a flexible exchange rate regime and with international mobility of capital, a decline in the rate of interest is translated, all things being equal, by a depreciation of the real effective exchange rate of the currency. This devaluation causes a drop in the prices of products intended for export, which increases the external demand and raises the local firms to produce more.
Our results are in agreement with [9], we find both in the short and the long-term a remarkable difference in the direction of variation and in the magnitude of the response of the output and the rate of inflation. These latest objective variables react with a magnitude more important for the Tunisian context only in the short term. The results are perfectly in perfect agreement with the work of Hachicha and Chaabane ([10] [11]), which according to the monthly data in a first opportunity and annual in a second prove that the channel of the exchange rate plays a role almost absent in the amplification of the actions of the monetary policy in the case of Tunisia. It is the channel that has a weak contribution of the macroeconomic stability of the Tunisian economy.
Nevertheless, the study of the impulse is not a simple thing to the extent where according to Mishkin ([12] [13]) production is in decline as a result of the decline in the investment.
These are the basic concepts of the macroeconomics traditional. However, [4] and [14] assert that the drop in the level of activity can lower or increase the demand for credit. [3] prove for the case of the Egypt that the effects of the channel of the interest rate and the credit are limited in time. It results in difficulties to deduct the sign of the variation of the investment, and this is not automatically a decline. What we have just to elucidate is part of those who speak of the macroeconomics New based on the foundations of the modern macroeconomics ( [15]), but the observation of the effect mystery and amazing phenomenon affecting primarily the price is possible.

The Second Method of Evaluation
The exchange rate is one of the instruments of adjustment of monetary policy. The objective of this second section is to describe the periods of overvaluation and under evaluation in order to detect the magnitude of current misalignments and to determine the exchange rate behavioral.
Our second method of assessment is based on equilibrium exchange rate behavioral method. This last has been initiated by ([16] [17] [18]). This method has the advantage of making account of the evolution of a theoretical model of exchange rates in order to measure the equilibrium exchange rate and identify potential misalignments of the exchange rate.
According to the approach of the exchange rate advanced behavioral by Mac Donald under the assumption of rational expectations, the current exchange rate is as follows: In order to estimate the equilibrium exchange rate behavioral, we need to identify the main determinants of the exchange rate. These will be used as the variables to introduce in a model VECM.

Definition of Variables to Retain
In this work, we retain the following variables:

The Differential of Real Interest Rates ( i ∆ )
This gap in real interest rate ( * i i − ) has a positive effect on the exchange rate in accordance with the theory of the parity of the rate of interest not covered advanced by [19]. This parity establishes that the difference between the anticipation of the exchange rate and the spot exchange rate is related to the difference between the rate of interest is domestic and the rate of interest abroad: where ( ) 1 t t E S + is the anticipation on the spot future exchange rate, or exchange rate ex-ante, formed on the basis of the information available at t a given moment t. 1 In order to ensure a positive differential interest rate, the previous equation become: The domestic real interest rate is defined as the difference between the nominal interest rate and the rate of inflation of each country of our sample. Oth- 1 This condition will be verified if investors consider foreign bonds and national level such as perfect substitutes and if there is not an obstacle to the international movement of capital.

The Degree of Openness of Each Economy (DO)
The usefulness of integrating this rate in the analysis comes from the developed countries to [20]. Among the latter, the devaluation of the real exchange rate is mainly due to the increase in the degree of openness of the economy.
Thus, the rate of openness enables us to calculate the level of the external constraint. It may play a role in amplifying the impact of shocks to real exchange rates.
The rate of openness is calculated as follows:

The Rate of Coverage (TC)
The rate of coverage is an indicator that measures the economic independence of each country. Recently, [21] have integrated this rate in their model to determine the misalignments of the exchange rate and to study the persistence of inflation for the countries of Latin America.
In effect, the rate of coverage is calculated as follows: This rate is calculated for all the countries of our sample with the exception of Portugal which denotes a null value of imports throughout the duration of the analysis.

The Productivity (PROD)
The productivity variable allows you to capture the Balassa-Samuelson effect of the countries of our study, that is to say the trend in the relative price of tradable goods in relation to the non-tradable.
[2] prove that there is a positive correlation between the variable PROD and the real exchange rate.
Generally, productivity is measured by the ratio of GDP per capita in each country of our study on the GDP per capita of the euro zone since we assume in this analysis that the trading partners of each country of study are already part of the euro area.
The variable PROD is calculated as follows: where log(.) is the logarithm function. The variables mentioned above are linked as follows:

The Case of the Countries of the Zone Med: Tunisia and Egypt
The graph of the misalignments explored in Figure 11 for

The Third Method of Evaluation
The VAR model, proposed by [1], became a technique commonly used in the econometric analysis and is adaptable to many approach in economy ( [3]). In this study, we will use a model We inspire during this research work of advanced of [22]. The latter considers a VAR model to variable parameter in the time and stochastic volatility of the form: For 1, , t s T = +  , where t y is a vector of the observed variables of dimen- are matrices of coefficients ranging in the time of di- A Σ are parameters varying in time.
We will define t a as the vector stacked triangular elements of t A ; et The parameters varying in time are supposed to follow a random walk: where , a β Σ Σ and h Σ are matrices diagonals,  The results relating to this nonlinear approach are explored in Appendix C.

Definition of Variables to Retain
The data to remember for this third section are the interest rates, the exchange rate, the index of production and the rate of inflation. These data are

Interpretation of Impulse Responses
The results presented in Appendix C are more significant than those found in Appendix A.

The Case of the Countries of the Zone Med: Tunisia and Egypt
According to Figure 17, Despite the fact that the central banks have adopted a monetary policy of so-called inflation targeting, consisting to aim for the stability of the retail price, the responses of inflation following a shock of monetary policy are sometimes found positive for Italy and Greece, sometimes negative for Spain and not significant for Portugal. Our results will rub shoulders with the new advanced search of [23] which claims that the absence of inflation would of itself the stability of the financial system. Retail Price stability may well go hand in hand with strong increases in the price of assets (real estate, fellows), fed by a excessive credit expansion, itself is doped by the generous supply of liquidities at low cost by the central banks.

Conclusion
We have tried throughout this research paper to study the impact of the crisis of the subprime on a few economies of the Euro-Med zone. To do this, we have