THE ROLE OF EXCHANGE RATE DYNAMICS IN STIMULATING ECONOMIC ACTIVITY IN ALGERIA DURING THE PERIOD 1985–2023
THE ROLE OF EXCHANGE RATE DYNAMICS IN STIMULATING ECONOMIC ACTIVITY IN ALGERIA DURING THE PERIOD 1985–2023

Summary/Abstract: This study examines the impact of exchange rate dynamics on economic growth in Algeria over the period 1985–2023, using the Autoregressive Distributed Lag (ARDL) approach. Real GDP is employed as an indicator of economic growth, while the nominal exchange rate represents the main explanatory variable, alongside oil prices and the money supply as control variables. The ARDL methodology allows for distinguishing between short- and long-run effects within a dynamic framework.The results reveal a positive and statistically significant relationship between the exchange rate and economic growth in both the short and long run. A 1% increase in the nominal exchange rate leads to an increase in GDP of approximately 0.4% in the short run and 0.65% in the long run. However, the estimated elasticities remain below unity, indicating a relatively weak growth response, largely reflecting structural rigidities and the economy’s strong dependence on hydrocarbon revenues.

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