Exchange Rate Pass Through To Inflation In Algeria

Abstract

Summary: 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 in Algeria. To reach that objective, we used monthly data of three variables sampled between 2011M01 to 2022M02, we used VAR model to determine the first stage effects, then we applied an econometric approach based on bounds cointegration test to ARDL approaches to measure the second stage effects. These multiples tests and econometric methodological techniques lead to a general result that exchange rate does not pass through much to import prices and consumer prices in monthly frequency, In the first stage, exchange rate and import prices are not cointegrated, only exchange rate causes import prices, import price impulse weakly to shocks on exchange rate and it has a little shares on exchange rate variance decomposition. In the second stage, exchange rate and consumer prices are cointegrated but consumer prices is not elastic to exchange rate. This article is divided into three main parts: the first is about literature review and previous studies, the second part presents empirical approach, the last parts is highlighting modelling results. Keywords: exchange rate pass through, import prices, consumer prices, VAR, ARDL. Jel Classification Codes:F31-E31