Inflation-threshold effect on current account imbalance in Tunisia: new evidence from a nonlinear approach

Rihab Bousnina and Foued Badr Gabsi

African Journal of Economic and Management Studies, 2024, vol. 16, issue 2, 206-218

Abstract: Purpose - In this article, we assess the impact of inflation on the current account balance in the case of Tunisia, covering the period 1976–2022. Design/methodology/approach - The study utilizes a threshold regression approach proposed by Hansen (2001) in a bid to identify inflation threshold values. Findings - The results show two inflation threshold values (3.87% and 8.41%), which determine three inflation regimes in the case of Tunisia. In lower inflation regimes, inflation has a positive and statistically significant impact on the current account balance. However, in higher inflation regimes, where inflation rates exceed 3.87%, there is a negative and statistically significant correlation with the current account balance, resulting in a deficit. Originality/value - The research suggests the need for a new policy approach that considers these threshold levels to address high inflation rates, which currently stand at approximately 11%, and aims to restore them to the targeted rate of 4%. This necessitates coordinated monetary and fiscal measures.

Keywords: Inflation; Current account balance; Nonlinearity; Threshold regression model (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-10-2023-0413

DOI: 10.1108/AJEMS-10-2023-0413

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