The impact of the interest rate channel on real output and inflation in Algeria: VAR approach

Abstract EN

This paper addresses mechanism for the transfer of monetary effect through interest rate channel to real output and inflation level .the study took place in Algeria during the period 1980-2018 using the vector autoregression (VAR) model.

it is also based on the impulse response functions and variance decomposition.

results showed that the response of real output and inflation level to the shock of the interest rate channel is very weak and almost non-existent.

moreover, results of the variance decomposition showed that interest rate channel contributes a very low percentage in the variation of the error forecasting real output and the level of inflation.

this paper presents an empirical evidence of the weakness of the interest rate channel in the mechanism of transferring monetary policy to the Algerian economy.