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Trade-threshold Effect on Inflation in Tunisia: New Evidence Resulting from a Nonlinear Approach

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  • Khoutem Ben Jedidia
  • Thouraya Boujelbene Dammak
  • Helali Kamel

Abstract

Trade openness is an important determinant of the inflation process. The effect of trade openness on inflation, however, is still an issue of debate at both theoretical and empirical levels. This study tried to provide a contribution to the literature by examining the relationship between inflation and trade openness in Tunisia over the period 1975Q1-2015Q4 using a nonlinear model. The originality of this study stems from the fact that it is the first investigation considering both the Residual-Based Tests for Cointegration in Models with the Regime Shifts and Threshold Regression model. The linear model confirms the existence of a positive relationship between inflation and trade in Tunisia. Yet, considering the nonlinear model, trade openness growth and Consumer Price Index (CPI) inflation growth show a statistically significant negative link as long as the trade openness evolution does not exceed the threshold. Nevertheless, if the trade openness growth is higher than the threshold, integrating the trade positively affects CPI inflation. Furthermore, a positive influence of Money supply growth on this type of inflation was noticed in Tunisia in all the considered regimes proving the effect of monetary factors on inflation level. Consequently, trade openness could be used to control inflation in Tunisia.

Suggested Citation

  • Khoutem Ben Jedidia & Thouraya Boujelbene Dammak & Helali Kamel, 2019. "Trade-threshold Effect on Inflation in Tunisia: New Evidence Resulting from a Nonlinear Approach," International Economic Journal, Taylor & Francis Journals, vol. 33(1), pages 149-169, January.
    • Handle: RePEc:taf:intecj:v:33:y:2019:i:1:p:149-169
    DOI: 10.1080/10168737.2019.1581246
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    Cited by:

    1. Francis Obeng Afari & Jong Chil Son & Horlali Yaw Haligah, 2021. "Empirical analysis of the relationship between openness and inflation: a case study of sub-Saharan Africa," SN Business & Economics, Springer, vol. 1(6), pages 1-23, June.
    2. Wissem Boukraine, 2020. "Inflation Dynamics in Tunisia: a Smooth Transition Autoregressive Approach," Economic Research Guardian, Weissberg Publishing, vol. 10(2), pages 122-143, December.
    3. Hamdi Becha & Maha Kalai & Kamel Helali, 2023. "Smooth transition regression model relating inflation to economic growth in Tunisia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-26, December.
    4. Syed Jaffar Abbas & Noman Arshed, 2023. "Examining Determinants of Regional Inflation Heterogeneity — A Robust Panel Data Analysis," SAGE Open, , vol. 13(4), pages 21582440231, December.

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