The Impact of Regulatory Quality on Inflation Rate: Some Evidence from Selected MENA Countries

One of the most important objectives of all economic policymakers is achieving an acceptable level of prices growth, so that it would help economic growth and economic stability. From the opinions of the experts about inflation can be said despite being inflation is an economic phenomenon, but it does not arise from economic principles solely and in this direction institutional factors and social infrastructure are an important factors affecting the prices growth especially in developing countries. Also many analysts believe that between institutional factors, the regulatory quality is one of the most important factors influencing on prices growth. Hence, this study aims to investigate the impact of the regulatory quality on inflation rate using statistical data of 16 selected MENA countries for the period of 1996-2012. For this purpose, the paper estimates the relationship between variables in Panel Smooth Transition Regression (PSTR) model and using Non-linear Least Squares (NLS) method. Results of the model estimation reject the linearity hypothesis, and indicate existence of one continuous transition function with two regimes that gives a threshold at regulatory quality of -0.94 in this group of countries. The results indicate that regulatory quality index, openness index and GDP coefficients are negative in two regimes and numerical values of these negative coefficients are increased in second regime. Moreover, government consumption expenditure and liquidity coefficients are positive and significant in two regimes and numerical values of these positive coefficients are decreased in second regime.