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Indicators of core inflation: Case of Tunisia

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  • mhamdi, ghrissi

Abstract

The aim of this paper is to provide a credible measure of inflation. This credibility is of great importance for successful inflation targeting regime. This paper proposes a technique to solve a conceptual disparity between inflation phenomenon and its measurement. For this, we proposed an alternative measure called core inflation, defined as the inflation component that has no real impact on long-term production. Evaluation of core inflation was obtained using a VAR system under the assumption that variations in the extent of inflation are affected by two types of shock. The first type has no impact on real output in the long term, while the second can have this effect. This approach is a reconstruction of the approach of Quah and Vahey (1995) in the case of the Tunisian economy. The study concluded that the administered prices constitute a major obstacle to measure, interpret and forecast inflation. Central Bank of Tunisia has no control over a third of the CPI basket. This feature of the Tunisian economy is simply a sign of weakness of the economic system and the need for monetary authorities to continue its efforts to liberalize prices.

Suggested Citation

  • mhamdi, ghrissi, 2014. "Indicators of core inflation: Case of Tunisia," MPRA Paper 63477, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:63477
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    References listed on IDEAS

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    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Scott Roger, 1998. "Core inflation: concepts, uses and measurement," Reserve Bank of New Zealand Discussion Paper Series G98/9, Reserve Bank of New Zealand.
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    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    7. Corbo, Vittorio & Landerretche, Oscar & Schmidt-Hebbel, Klaus, 2001. "Assessing Inflation Targeting after a Decade of World Experience," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 343-368, October.
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    9. Scott Roger, 1997. "A robust measure of core inflation in New Zealand, 1949-96," Reserve Bank of New Zealand Discussion Paper Series G97/7, Reserve Bank of New Zealand.
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    12. mhamdi, ghrissi, 2009. "Evaluation du degré d’indépendance de la Banque Centrale de Tunisie [Independence degree of Tunisian central bank]," MPRA Paper 63671, University Library of Munich, Germany.
    13. mhamdi, ghrissi, 2012. "Determinants of Inflation in Tunisia Using Structural Modeling," MPRA Paper 63479, University Library of Munich, Germany.
    14. Ghrissi Mhamdi, 2013. "Stability Of Money Demand Function In Tunisia," Post-Print halshs-01138431, HAL.
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    16. Chrigui, Zouhair & Boujelbene, Younes & Mhamdi, Ghrissi, 2011. "Central Bank independence and inflation: Evidence from emerging countries," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 453-469, May.
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    More about this item

    Keywords

    monetary policy in Tunisia; Inflation; core inflation; VAR;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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