The Nominal Devaluation and Real Devaluation: the case of Algeria

Abstract

This paper explores the relationship between nominal and real effective exchange rates (REERs) using time series data over the period 1994-2018_for_Algeria. The autoregressive distributed lag (ARDL) and error correction method have been employed to test the long run and short run relationship. The estimations indicate that the nominal devaluation not only leads to real devaluation in long-run but also in the short-run. However, this relationship has become unstable after the collapse in oil prices and higher international food prices in the past few years. The main contributions of this paper are: (1) there is no study focused on the impact of nominal on REER for Algeria in recent years. (2) This is the first study examining the impact of the nominal devaluation on real devaluation by incorporating the structural reforms during the 1990s and the structural international world price hike in food and agriculture products after 2011.