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A Composite Leading Indicator of Tunisian Inflation

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  • Mohamed Daly Sfia

Abstract

This paper investigates the possibility of constructing a composite leading indicator (CLI) of Tunisian inflation. For doing so, partial information about future inflation rate provided by a number of basic series is analyzed first. Based on the correlation analysis, a few of these basic series are chosen for construction of composite indicator. Empirical results show that the deviation from long???term trend of two monetary aggregates (M1 and M3), short???term interest rate (TMM), real effective exchange rate and crude petroleum production, are important leading indicators for inflation rate in Tunisia. Accordingly, based on monthly data on these basic series, one composite indicator is constructed and its performance is assessed by using turning point analysis, granger causality tests, and impulse response functions. The results indicate that our composite indicator is useful in anticipating changes in inflation rates in Tunisia.

Suggested Citation

  • Mohamed Daly Sfia, 2010. "A Composite Leading Indicator of Tunisian Inflation," William Davidson Institute Working Papers Series wp980, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2010-980
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    More about this item

    Keywords

    Tunisia; Inflation; Leading indicators; Composite index;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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