Unveiling extreme dependencies between oil price shocks and inflation in Tunisia: Insights from a copula dcc garch approach

Khaled Jeguirim and Leila Ben Salem

MPRA Paper from University Library of Munich, Germany

Abstract: We follow a non-linear dynamic correlation approach using a combination of a DCC-GARCH model and a copula model to capture the dependence between oil price changes and inflation in Tunisia. The case of Tunisia is particularly instructive since, after having been an exporter and a major producer, it became a net oil importer in the 2000s. The study, based on monthly data spanning decades, selects a Gumbel copula and shows that beyond weak average dependencies, there is a strong correlation between extreme values, suggesting that inflation in Tunisia is more sensitive to extreme (positive) variations in oil prices than to average variations. The implications of these empirical results for economic policy are crucial for the Tunisian economy.

Keywords: oil price; inflation; copula; dynamic conditional correlation; Tunisia (search for similar items in EconPapers)
JEL-codes: E31 Q41 Q43 (search for similar items in EconPapers)
Date: 2024-07-05
New Economics Papers: this item is included in nep-ara, nep-ene and nep-mon
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