The Asymmetric Exchange Rate Fluctuations' Impact on Inflation in Algeria: An Econometric Analytical Study Using the VAR Model Methodology for the Period 1990–2023

Abstract

This study aims to analyze and measure the impact of asymmetric exchange rate fluctuations on inflation in Algeria during the period 1990–2023 by formulating and employing the Vector Autoregression (VAR) model. The data was collected from the World Bank database and the Bank of Algeria.

The findings, based on the VAR model test, indicate an inverse relationship between inflation and the exchange rate, with approximately 74% of inflation variations attributed to its past values and exchange rate fluctuations in Algeria during the study period. Through shock analysis and impulse response functions, the study concludes that exchange rate fluctuations in Algeria have a more pronounced positive effect on inflation in the short term, whereas in the long term, the effect turns negative.