The Impact of Monetary Policy on Inflation in Algeria: An Econometric Study Using the ARDL Bounds Testing Approach)0202-0222(

Abstract

This study identifies the empirical determinants of inflation in Algeria over 2000-2023 using the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration (Pesaran et al., 2001), complemented by an Error Correction Model (ECM) and CUSUM structural stability tests. Six variables are examined: inflation, money supply growth (M2), real interest rate, real effective exchange rate, international oil prices, and government expenditure as a share of GDP, drawing on 24 annual observations from official sources. The bounds test confirms a long-run cointegrating relationship at the 99% confidence level (F=7.843 > upper critical bound at 1% = 4.630). Money supply growth is the dominant long-run determinant (β=0.621), followed by government expenditure (β=0.332) and the real exchange rate (β=0.289). The ECM indicates that 48.7% of short-run disequilibria are corrected annually (ECT=- 0.487). The study concludes that strengthening the Bank of Algeria's independence and adopting a flexible inflation-targeting framework are essential policy priorities