Testing Co-integration relationship between the exchange rate and inflation rates in the Algerian economy: An Empirical Study for the period (1970-2014

Abstract

This research explores the relationship between exchange rate and inflation rate in the Algerian economy during the period (1970-2014). The results reveal a lack of evidence of the relationship of equilibrium in the long run between the Algerian dinar exchange rate and inflation rate. Moreover, the analysis reveals that there is no trace of causality in both directions, in the sense that the theory of purchasing power parity is incorrect on the Algerian reality. Thus, we cannot rely on this theory in the identification and interpretation of the Algerian dinar exchange rate in the current reality and using current data.