Original scientific paper

https://doi.org/10.2478/zireb-2023-0015

The Effects of Fiscal Dominance on Monetary Policies in Algeria Amidst COVID-19

Benheddi Ikram ; University of Aїntèmouchent Belhadj Bouchaib, Aïn Temouchent, Algeria
Kamel Si Mohammed orcid.org/0000-0002-4359-9151 ; Faculty of Economics and Management,University of Ain Temouchent, Algeria

Abstract

While the COVID-19 pandemic has triggered the likelihood and intensity of the increased budget deficit affecting the inflation rate, increasing concerns emerge regarding the ability of governments to stabilize the price under the fiscal dominance in oil-exporting countries. This paper examines the viability of a non-Ricardian regime in Algeria under COVID-19 and the consequences of fiscal dominance on monetary policy. The study demonstrated that budget deficit/GDP, official exchange rate, an interest rate of treasury bills, oil prices, and broad money/GDP are all significantly connected to the inflation rate using an ARDL model from 1998 to 2020. Long-term cointegration is present, supporting the legitimacy of the non-Ricardian regime and the importance of fiscal policy. Empirical findings show the substantial role of the budget deficit, particularly during the COVID-19 period, on Algerian inflation, which has implications for the central bank, government.

Keywords

Fiscal dominance; Monetary policy; COVID-19; ARDL; Algeria

Hrčak ID:

310421

URI

https://hrcak.srce.hr/310421

Publication date:

30.11.2023.

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