Asymmetric Impact Of Oil Price And Exchange Rate On Inflation In Algeria: Evidence From Non-linear Ardl Approach

Abstract

In this paper, we examine the asymmetric effects of both the world oil price and the exchange rate on inflation in Algeria using annual data from 1973 to 2021. In doing so, we employed the newly established Non-Linear AutoRegressive Distributed Lag (NARDL) model to divide oil price and exchange rate fluctuations into positive and negative variations. The empirical results show that fluctuations in oil prices have an asymmetric effect on Algerian inflation in both the short and long term. More importantly, we discover that positive oil price increases have an asymmetrically greater effect on inflation than negative oil price changes. Furthermore, a rise in the Algerian dinar's depreciation is significantly increasing Algeria’s inflation, whereas a decline in the exchange rate (the Algerian dinar's appreciation) fails to decrease inflation. Yet, the asymmetric impact of exchange rate fluctuations to inflation is only in the short run