Examining the dynamics of optimal level of inflation nexus economic growth in the Gambia: a threshold model perspective

Better economic performance accompanied by stable and low inflation are the key objectives of monetary policy, especially after the COVID-19 episode. Thus, the Central Bank of The Gambia is face with the laborious duty of accomplishing these dual economic policy objectives, which is often elusive and hard to achieve concurrently, most notably post COVID-19 episode rising inflation rates. Therefore, this paper investigates the optimal association between inflation and growth in The Gambia from 1977-2021. The threshold autoregressive model (TAR) is use due to appropriate procedures for estimation and inference it provides. The empirical outcome confirms the existence of nonlinearities in the inflation-growth nexus and revealed the presence of 11.69% threshold, above which inflation is unfavourable to economic performance. This result will inform policymakers to adopt the appropriate inflation target to evade the harmful consequences of high inflation whereas reaping the benefit of low inflation.