Study OF Inflation Dynamics IN Algeria Using Var AND Vecm Models

Abstract

This article addresses the question of identifying the sources and nature of the shocks underlying inflation fluctuations in the Algerian economy—an issue that remains relatively underexplored in the existing literature. The study relies on the structural VAR model of Blanchard and Quah (1989) and a Vector Error Correction Model (VECM). The analysis is based on monthly macroeconomic data covering the period from January 1995 to June 2020. The research is structured around the identification of shocks, their temporal effects, and their contribution to the variance of inflation. The results reveal that more than 94% of price level fluctuations in Algeria are explained by external demand shocks, money supply and demand shocks, as well as monetary policy shocks.