The Nonlinearity of the New Keynesian Phillips Curve: The Case of Tunisia

Imen Kobbi and Foued-Badr Gabsi
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Imen Kobbi: Department of Economics, Faculty of economics and Management, University of Sfax, 3026 Sfax, Tunisia
Foued-Badr Gabsi: Department of Economics, Faculty of economics and Management, University of Sfax, 3026 Sfax, Tunisia

Economies, 2017, vol. 5, issue 3, 1-12

Abstract: This article seeks to check the nonlinearity of the Phillips curve in Tunisia for the 1993–2012 period, relying on a hybrid new Keynesian Phillips curve modeled via a Logistic Smooth Transition Regression (LSTR) model with endogenous variables. We estimate this model using the nonlinear instrumental variables. The empirical results corroborate the new Keynesian assumption ofprice rigidity and show that the response of inflation to the output gap tends to be significant only if the inflation rate tends to be relatively high and exceeds a certain threshold. For a low inflation rate, the price rigidity dominates. This result is particularly evident in Tunisia, especially for the years following the 2011 revolution during which the elasticity of inflation rate to an excess demand has become highly important and the inflation rate experienced record levels.

Keywords: new Keynesian Phillips curve; nonlinearity; menu cost model; price rigidity; Tunisia (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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