Exchange rate pass through to inflation in Algeria

Abstract EN

This article aims to test whether there is an impact of exchange rate pass-through on import prices as a first-stage effect and consumer prices as a second-stage effect in Algeria.

to reach that objective, we used monthly data of three variables sampled between 2011M01 and 2022M02.

we used a VAR model to determine the first stage effects, and then we applied an econometric approach based on a bounds cointegration test to ARDL approaches to measure the second stage effects.

multiple tests and econometric methodological techniques result in the general conclusion that the exchange rate does not pass through much to import and consumer prices on a monthly basis.

in the first stage, exchange rate and import prices are not cointegrated ; only exchange rate causes import prices ; import price impulses are weak shocks on exchange rate ; and import prices have a little share in exchange rate variance decomposition.

the exchange rate and consumer prices are cointegrated in the second stage, but consumer prices are not elastic to the exchange rate.

this article is divided into three main parts : the first is about the literature review and previous studies ; the second part presents an empirical approach ; and the last part highlights modelling results.