Quantile-VAR Approach to Spillovers and Connectedness Among Real-Financial Aggregates and Economic Freedom in Tunisia

This study investigates the time-varying connectedness between economic freedom and key real-financial aggregates in Tunisia, including GDP, money supply, interest rate, exchange rate, inflation, labor force, and the stock market index, using a quantile-based connectedness framework and quarterly data over the period 2010–2024. Unlike previous connectedness studies that mainly focus on macroeconomic and financial variables, this paper explicitly incorporates economic freedom as an institutional determinant within a quantile connectedness framework, thereby extending the literature on macro-financial interconnectedness in emerging economies. The empirical results reveal strong regime dependence, as the Total Connectedness Index (TCI) is substantially higher under extreme market conditions than at the median quantile. In bearish states (quantile = 0.05), economic freedom behaves primarily as a net receiver of spillovers from GDP, labor force, and interest rates, highlighting the reactive nature of institutional quality during periods of economic stress. By contrast, in bullish states (quantile = 0.95), economic freedom becomes a net transmitter of shocks, influencing money supply, inflation, and stock market dynamics, suggesting that institutional conditions amplify macro-financial interactions during expansionary phases. Under normal economic conditions (quantile = 0.50), connectedness remains moderate and relatively balanced, reflecting weaker systemic interdependence. From a theoretical perspective, the findings support the view that institutional quality is not neutral over the business cycle but evolves asymmetrically with macro-financial conditions. The study therefore contributes to the literature by demonstrating the procyclical and state-dependent role of economic freedom in shaping macro-financial spillovers in an emerging economy context. These findings also provide important policy implications for strengthening institutional resilience and macroeconomic stability in Tunisia.