THE IMPACT OF PARALLEL EXCHANGE RATE ON INFLATION IN ALGERIA (2000-2024)

Abid Farid Zakaria

Abstract


This study investigates the long-run and short-run impact of the parallel exchange rate on inflation in Algeria over the period 2000–2024. Using annual time-series data and the autoregressive distributed lag bounds testing approach, we estimate dynamic relationships while accommodating mixed integration orders. Results confirm cointegration between the variables, with a long-run elasticity of 0.43, indicating that a 1% depreciation in the parallel market raises inflation by 0.43 percentage points. The error-correction term of -0.32 indicates that approximately 32% of the disequilibrium is corrected annually. Diagnostic and sensitivity analyses, including Chow breakpoint tests and rolling-window estimates, validate the model's stability and robustness. The findings underscore the structural role of informal exchange rate dynamics in driving domestic price pressures, particularly following the 2014 oil price shock. Policymakers, central bankers, and researchers focused on macroeconomic stabilization in resource-dependent economies will find these results instrumental for designing exchange rate reforms, inflation-targeting frameworks, and structural diversification strategies aimed at reducing vulnerability to external shocks and informal market volatility.

Keywords


parallel exchange rate; inflation; ARDL model; ECM; Algeria; monetary policy;

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References


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DOI: http://dx.doi.org/10.12709/mest.14.14.02.30

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