Core Inflation Measure and Its Effect on Economic Growth and Employment in Tunisia

Maha Kalai
Thouraya Boujelbene Dammak
JEL codes: 
E22 - Capital; Investment; Capacity, E23 - Production, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital, E31 - Price Level; Inflation; Deflation.
The aim of this study is to present a measure for the core inflation in Tunisia. This measure consists in a six-variable structural vector autoregression model covering the period 1975Q1-2014Q4. Our results show that the observed inflation rate exceeds the core inflation when demand rises and conversely when there is a low growth. This seems to be reasonable as core inflation has a deterministic tendency and, therefore, the monetary impulse largely accounts for the evolution of inflation. Our findings also support the idea that there is a weak positive correlation between the inflation rate and the industrial production index in the short run. This core inflation is also observed to have a weak effect on unemployment over the short and long runs. Thus, this type of inflation should be taken into account as an important element for the determination of a targeted inflation rate and for future predictions and decisions of the monetary authorities.
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