The Study of Inflation in Algeria: An ARDL Testing Approach

Abstract

It is recognized that inflation is one of most misunderstood economic phenomena. Indeed, it is a persistent increase in general price level  both of goods and services in an economy over a period of time, which affect necessarily the purchasing power or a loss in the real value of the money. Therefore, in many countries, controlling inflation has been a high priority, especially those with small open economies since the early 1970s when oil prices soared to record high levels.In Algeria, inflation appears as a first challenge for recent economic performance. This study examines the main determinants of inflation in Algeria using the ARDL model during the period 1980-2016. In this context, this paper focuses on the major sources to explain inflation trend in Algeria (imports price, oil price and money stock, government expenditure and effective nominal exchange rates of the Algerian Dinar). However, our results based on ARDL model establish that a stable long-run relationship exists between inflation and its determinants. Thus, in the short run, only external factors (imports price, oil price and effective and nominal exchange rates) impact inflation in Algeria. Consequently, we may infer, as far as the impact on inflation is concerned, that fiscal and monetary policies cannot on their own be statistically significant.

Keywords: inflation, fiscal and monetary policies, imports price, exchange rate, ARDL Model.