The current study examines the relationship between the world oil price and aggregatedemand in a developing country, Tunisia, via the interest rate channel by means ofunivariate and multivariate cointegration analysis with multiple structural changes.Results of the study indicate that oil price, by impacting the price level positively,negatively impacts real output. The results also indicate that monetary policy is initiallyeased in response to a surge in the price of oil in order to lessen any growthconsequences, but at the cost of higher inflation. The ensuing higher inflation, however,prompts a subsequent tightening of monetary policy leading to a further decline inoutput. In addition, output does not revert quickly to its initial level after an oil priceshock, but declines over an extended period.