Determinants of Inflation in Algeria: Analysis with a Vector Error Correction Model from 2001 to 2016

Abstract

This study aims to identify the determinants of inflation, highlighting the case of Algeria from 2001 to 2016. For better results, we have adopted the descriptive approach besides econometric methods on quadrennial data, by estimating a Vector Error Correction Model (VECM). The empirical results showed that there is a positive causal relationship, starting from the broad money supply and public expenditure to inflation, whether in the short or the long term. The same is for oil rents while going through an inverse relationship in the short term. Another negative relationship was also found from the unemployment rate to inflation, and this only in the long term