The déterminants of the Algerian exchange rate : The impact of the Dollar and the Euro

Abstract

The study focused on Algerian exchange rate and its determinants, in addition, it investigates the impact of the U.S dollar and the Euro on the Dinar during the period of (1999-2018). For this purpose it was noted an overview about exchange rate and its determinants through analysing the development of exchange rate, the situation of the balance of payments, foreign exchange reserve and money supply also the evaluation of the dollar and the euro is analysed. The Toda-Yamamoto causality approach has been applied to take into consideration the following variables: exchange rate, the balance of payment, exchange reserve and money supply. However, the Structural Vector Auto-Regression model (SVAR) has been applied to demonstrate the impact of the dollar and the euro on the dinar. The tests results confirmed the no existence of causality relationship between USD/DZD and MM while it shows the existence of unidirectional causality from BOP to USD/DZD and unidirectional causality from EXR to USD/DZD. Moreover, the shock to the USD/EUR is the most impactful and significant shock on USD/DZD. Unlike the shock on EXR does not lead to significant effects on USD/DZD, while the shock on BOP and MM leads to significant effect on USD/DZD.