Unveiling extreme dependencies between oil price shocks and inflation in Tunisia: Insights from a copula dcc garch approach

Jeguirim, Khaled and Ben Salem, Leila (2024): Unveiling extreme dependencies between oil price shocks and inflation in Tunisia: Insights from a copula dcc garch approach. Forthcoming in: Journal of Applied Economic Sciences , Vol. 86, No. 4 (2024): pp. 471-484.

Abstract

We follow a non-linear dynamic correlation approach using a combination of a DCC-GARCH model and a copula model to capture the dependence between oil price changes and inflation in Tunisia. The case of Tunisia is particularly instructive since, after having been an exporter and a major producer, it became a net oil importer in the 2000s. The study, based on monthly data spanning decades, selects a Gumbel copula and shows that beyond weak average dependencies, there is a strong correlation between extreme values, suggesting that inflation in Tunisia is more sensitive to extreme (positive) variations in oil prices than to average variations. The implications of these empirical results for economic policy are crucial for the Tunisian economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: oil price, inflation, copula, dynamic conditional correlation, Tunisia
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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