The relationship between fiscal deficits and the nominal exchange rate following negative external shocks : Evidence from Algeria

Abstract EN

The paper empirically explores the relationship between the nominal exchange rate “USD/DZD” and two variables such as “Foreign exchange reserves and the budget balance” in Algeria, using a VAR modelisation on annual time series data for the period of 1967 to 2017.

The empirical findings show that there is a significant negative short-run relationship between the exchange rate and respectively budget balance and the level of exchange reserves.

Even if the exchange rate is determinated by the bank of Algeria, our study advances the fact, that it could have budgetary causes.