Measuring Core Inflation for Tunisia

This paper will derive a core inflation measure for Tunisia. The core inflation is estimated as the permanent component of headline inflation within the common trends and common cycles model allowing for both short (common cycles) and long-run (common trends) co-movements restrictions. The forecast ability of the estimated core inflation is then compared to the one of the estimated core inflation from common trends model (with only long-run co-movements restrictions). The out-of-sample analysis points towards the common trends and common cycles core inflation measure as being the best to predict the future inflationary trend