Estimate the inflation threshold in Algeria using the Hansen method during 1970-2017

Abstract

The study aims to reveal the extent to which of inflation and economic growth in Algeria to the idea of ​​the inflation threshold for the period 1970-2017, to achieve this goal was based on the Hansen method. The study, based on the TAR model, found an inflation threshold of 3.65%, using the likelihood ratio and Bootstrap, revealed a non-linear relationship between inflation and economic growth, and The Confidence interval of threshold is found between 3.65% and 5.96%, indicating certainty about threshold level estimation. The results of the study revealed that before the level of 3.65%, under a low inflationary environment (Regime I), inflation has a positive effect on growth and other variables, while inflation rates after the inflation threshold of 3.65%, under a high inflation environment (Regime II), have a negative effect on growth and other variables. By comparing the inflation threshold estimates with the different levels of inflation in Algeria, it was found that during the whole period, inflation levels in many years exceeded the inflation threshold, which meant that the Regime II prevailed, which emphasized that inflation above the threshold was detrimental to economic growth and to all the variables set for it.