The Dynamics of the Euro-dollar exchange rate, and it’s Impact on Algerian Imports from the Euro Zone

Abstract

The objective of this research is to estimate the exchange rate Pass-Through of the US dollar on the Algerian imports. This impact is particularly important in the case of imports from euro area countries. By 2015, Algerian imports from the euro area countries represent $ 22 billion. Half of this invoice is denominated in foreign currency. Algerian imports are exposed to foreign exchange risk since Algerian foreign exchange earnings come exclusively from hydrocarbon exports and are denominated in US dollars. Our model is based on the import demand function of Algeria between 1992 and 2015. Our estimates of the impact of the dollar-euro exchange rate returns on Algerian imports show that the depreciation of the US dollar leads to a significant increase of the value of imports. There is a total transmission of the Dollar-Euro movement to the values of Algerian imports, particularly that coming from Spain, Germany and Belgium.