Measuring and Explaining the Causes of Inflation Fluctuations in the Algerian Economy: An Empirical Study Using the ARDL Model (1990–2023)

Abstract

This study aims to measure and explain the main determinants of inflation rate fluctuations in the Algerian economy over the period from 1990 to 2023. To achieve this objective, an empirical analytical approach was adopted using the Autoregressive Distributed Lag (ARDL) model to process the time series and examine the dynamic relationships between inflation (as the dependent variable) and a set of key macroeconomic indicators (broad money supply M₂, public expenditure, official exchange rate of the Algerian dinar, and trade openness index), alongside dummy variables to control for structural shocks that affected the national economy over the past four decades.

The empirical results confirm the existence of a cointegrating relationship (long-run equilibrium) between inflation and its macroeconomic determinants. Growth in broad money supply and the exchange rate were identified as the most influential determinants of the Consumer Price Index (CPI) in the long run, confirming both the monetary and imported nature of inflationary pressures in Algeria. Furthermore, the Error Correction Term (CointEq_t-1 = -0.418) showed a statistically significant negative coefficient, indicating an annual speed of adjustment of 41.8% towards long-run equilibrium following short-run shocks. The study concludes that controlling inflation in Algeria requires tight coordination between monetary and fiscal policies, alongside active economic diversification strategies to mitigate the pass-through of imported inflation via the exchange rate channel.