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

Ikram Benheddi and Mohammed Kamel Si ()
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Ikram Benheddi: University of Aїntèmouchent Belhadj Bouchaib, Aïn Temouchent, Algeria
Mohammed Kamel Si: Faculty of Economics and Management, University of Ain Temouchent, Algeria

Zagreb International Review of Economics and Business, 2023, vol. 26, issue 2, 77-96

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 (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 E61 E62 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:zirebs:v:26:y:2023:i:2:p:77-96:n:1004

DOI: 10.2478/zireb-2023-0015

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