Inflation dynamics in Tunisia: a smooth transition autoregressive approach

The fact that inflation is still on the rise, despite measures undertaken by the Tunisian central bank, prompts questions as to whether or not inflation dynamics has changed, exhibiting higher levels of persistence and volatility. This paper employs the smooth transition autoregressive model (STAR) to analyze Tunisian inflation dynamics on monthly data over the last three decades. We distinguish three periods based on monetary reforms. The non-linearity tests suggest that the ESTAR specification describes better the behavior of inflation. Our results suggest changes in persistence and important shifts in volatility, which confirm the effectiveness of the monetary reforms to a certain extent given the past political instability and the democratic transition in Tunisia.