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 GROWTHt-1, and it is considered with the intercept not affected by regime change. In contrast, the inflation rate INFt is affected by the threshold variable that is represented in the logarithm of inflation rate INFQt. 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).