Growth-stimulating inflation rates : threshold model approach from Algeria

Abstract

This paper answers the problem of the existence of an inflation rate that stimulates economic growth in Algeria during the period 2000:1-2018:2 by quarterly data. We use the TAR model with brutal transition, where the dynamic part is the one lag of economic growth rate GROWTH_t-1, and it is considered with the intercept not affected by regime change. In contrast, the inflation rate INF_t is affected by the threshold variable that is represented in the logarithm of inflation rate INFQ_t. The results showed that the rate of inflation stimulating economic growth in Algeria is between 0.422-1.02% quarterly, ie between 1.688-4.08% annually, a threshold close to that of industrial countries according to Khan & Senhadji (2001)