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

Author

Listed:
  • Ikram Benheddi

    (University of Aїntèmouchent Belhadj Bouchaib, Aïn Temouchent, Algeria)

  • Mohammed Kamel Si

    (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.

Suggested Citation

  • Ikram Benheddi & Mohammed Kamel Si, 2023. "The Effects of Fiscal Dominance on Monetary Policies in Algeria Amidst COVID-19," Zagreb International Review of Economics and Business, Sciendo, vol. 26(2), pages 77-96.
    • Handle: RePEc:vrs:zirebs:v:26:y:2023:i:2:p:77-96:n:1004
    DOI: 10.2478/zireb-2023-0015
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal dominance; Monetary policy; COVID-19; ARDL; Algeria;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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