Measuring the relationship between devaluation and domestic inflation in the short term: the case of Algeria an econometric study for the period (1990-2021)‎

Abstract EN

The aim of this study is to shed light on the measurement of the relationship and determine the direction of causality between the reduction of currency value and short-term local inflation rates.

the study draws its importance from evaluating the actual impact on inflation rates as a direct result of currency devaluation.

the study used a vector auto regression (VAR) model based on annual data for the period from 1990 to 2021.

the results of the study showed, through a causality test, that there is a dynamic relationship between the reduction of currency value (exchange rate) and local inflation.

by analyzing response functions, a response to local inflation rates was observed due to shocks in the rate of change of the nominal exchange rate and imported inflation rates, and this response decreases over time.