MONETARY DETERMINANTS OF THE ALGERIAN DINAR EXCHANGE RATE

Abstract

This study aims to analyze the monetary determinants of the Algerian Dinar exchange rate over the period 1970-2022 using a basic financial model. The estimation results indicate that 77% of the variation in the nominal exchange rate can be explained by the studied variablesM,M^*,RY,〖RY〗^*and this finding remains robust even when accounting for changes in the real exchange rate. The results suggest that fluctuations in the nominal exchange rate of the Algerian Dinar are significantly influenced by monetary and real shocks, particularly those associated with strong growth in the money supply. Consequently, the Algerian Dinar will likely depreciate over time, regardless of the economic growth rate. Furthermore, estimates of the real exchange rate indicate a weak influence of monetary factors on its evolution, likely due to price rigidities.