Is The Monetary Policy Of Algeria's Central Bank Describable By A Linear (extended) Taylor Rule?

Abstract

The study explores the Central Bank of Algeria's management of interest rates within an inflation targeting strategy. It analyzes the extended linear Taylor rule, which incorporates the exchange rate and integrates forward-looking behavior to target expected inflation. The generalized method of moments (GMM) is used for the analysis from Q1 2000 to Q4 2021. The findings suggest that the response of inflation is insufficient for achieving stability, and the Algerian monetary policy is responsive to exchange rate fluctuations. However, the "fear of floating" undermines the policy response.