Abstract

 This research applies text mining and natural language processing (NLP) methods to examine the communicative tactics of the Bank of Algeria through its annual reports from 2002 to 2022. Techniques such as Latent Dirichlet Allocation (LDA) for topic modeling and sentiment analysis with the Loughran-McDonald dictionary were employed to identify main themes and emotional tones. The remarkable changes in the bank’s communication indicate the effects of oil price shocks, the global financial crisis, and the COVID-19 pandemic. Initially, this was about economic expansion and monetary policy, but later it became focused on inflation targeting as well as financial stability in times of economic turbulence. Negative sentiment during this period indicates a cautious approach according to sentiment analysis results. Readability tests using the Coleman-Liau readability index also suggest that although the texts are complicated, they remain clear for efficient communication with both the public and employees operating in the marketplace. This is an area where literature lacks because no one has ever studied how Bank of Algeria reports can be analyzed utilizing these advanced techniques in text mining and NLP, as far as we have been able to find so far.

Keywords: Central Bank Communication, Text Mining, Natural Language Processing (NLP), Bank of Algeria.

Type:  Working Paper.

Abstract

Our study aims to estimate, evaluate, and analyze the impact of the current exchange rate system (managed floating) on inflation in Algeria during the period (2001-2021) using the Markov-Switching Vector Autoregressive model (MS-VAR), testing impulse response functions, and variance decomposition. This research seeks to understand the initial effects generated by the exchange rate policy. Accordingly, the results revealed that within the nonlinear approach, the effect of oil price is stronger than the effect of the exchange rate on inflation in both regimes. The current exchange rate policy also demonstrates some positive effects on inflation in the short term, especially under the boom regime. On the other hand, variance decomposition confirms that oil price fluctuations explain inflation fluctuations in high proportions (in the short, medium, and long term) in the two systems, while exchange rate fluctuations explain inflation fluctuations in low proportions in both regimes across all periods.

Keywords: Exchange rate regime, Inflation, MSVAR model, Algeria.

Type:  working paper

Journal: ERF Working Papers Series.

Abstract

 It is widely acknowledged that choosing an appropriate exchange rate regime is the primary goal to achieve for any economic policy, especially in the case of developing countries that aim to develop and build a strong macroeconomic framework in order to address and hedge against external shocks. Nevertheless, these countries, including oil and natural gas exporting countries, encounter serious and permanent problems in selecting the most appropriate option, particularly if no traditional advice is offered in the context of the current exchange rate arrangements that are difficult to uphold. This topic has sparked controversial issues and debate questions at the academic and even political levels during the last decade, following the decline in oil prices in 2014. In order to tackle the situation, Jeffrey Frankel proposed in 2017 an alternative arrangement that combines the advantages of floating and pegging within a therapeutic indicative proposal that is termed the currency-plus-commodity basket (CCB) proposal for countries specialized in the production and exportation of oil. The present contribution aims to apply this system to the case of Algeria. Its main purpose is to appreciate, evaluate, and analyze the impact of the CCB system, after experimentation, as compared to the current one, on the indicators of internal balance (inflation rates) and external balance (change in foreign exchange reserves) during the period extending from 2001 to 2021 (monthly data). In this case, the wavelet analysis technique and robustness tests, which are represented by the quantile-on-quantile regression (QQR), were applied. The empirical results revealed a preference for the alternative system at the expense of the current one, actually called managed floating, which seems to be an inflationary and very costly system in terms of depleting or draining foreign exchange reserves. It is noteworthy that the alternative system provides a very important experimental guide to the Central Bank in preserving monetary and financial stability (external) and achieving internal and external balance (i.e., stability of both inflation rates and foreign exchange reserves). This probably makes this system more convenient and profitable. In addition, this system helps the national economy to move; it also revitalizes and stimulates the economy of the country. It also supports the stability of terms of trade in the context of countering cycles through an active and leading monetary policy. Therefore, the system that is proposed and investigated in this paper remains the subject of discussion, modification, experimentation, development, evaluation, and examination.

Keywords: Exchange rate system; Currency-Plus-Commodity Basket (CCB); Wavelet analysis; Quantile-on-quantile regression (QQR); Inflation rates; Foreign exchange reserves; Algeria.

Type:  Working Paper.

Abstract

 This paper analyzes the potential benefits of an alternative exchange rate regime proposed by Jeffrey Franke, called the Commodity-Currency Basket (CCB) regime, over the current exchange rate regime in Algeria. The CCB regime, which combines the advantages of both floating and fixed exchange rate systems, has been suggested as a way to mitigate the negative impacts of oil price volatility on the economies of countries that heavily rely on oil exports. We use wavelet analysis and quantile-on-quantile regression techniques to estimate and evaluate the impact of the CCB regime on internal and external balance indicators in Algeria, including inflation rates and foreign exchange reserves, from 2001 to 2021. The findings suggest that the CCB regime is superior to the current floating exchange rate system in terms of maintaining monetary stability and achieving internal and external balance, while also providing more flexibility and stimulation to the domestic economy due to its ability to achieve terms of trade stability through an active countercyclical monetary policy. However, the proposed regime remains subject to further discussion, adjustment, experimentation, and development

Keywords: Exchange rate regime, Currencies-Plus-Commodity Basket, Wavelet analysis, Quantile-on-Quantile regression, Inflation rates, Foreign exchange reserves, Algeria.

Type:  Working Paper.

Journal: ERF Working Papers Series.

Abstract 

This paper will study the impact of the negative shock in oil prices on the most important macroeconomic variables under two different frameworks of fiscal policy: the first includes a fiscal policy and the second includes a neutral fiscal policy. To do this, the small open DSGE developed by Median and Soto (2005) was expanded to fit the structural characteristics of the Algerian economy as an oil-exporting economy. After calibrating the parameters of the model and simulating the effect of oil shock using the dynare. The results show that after a negative shock in oil prices, the government's adoption of a procyclical fiscal policy will contribute significantly to the amplification and continuation of the impact of this shock on various macroeconomic variables such as GDP, inflation, real exchange rate, and consumption.

Keywords: oil-exporting economy, fiscal policy, real exchange rate, DSGE model; oil price shock, Algeria.

Type: Conference Paper.

Conference: Monetary and financial trends of the Algerian economy in light of regional and international economic developments, Djelfa University, Algeria.

Abstract

Our study attempts to estimate, evaluate, and analyze the impact of the current exchange rate system (managed float) on inflation in Algeria from 2001 to 2021 (monthly data). We use the Markov-Switching Vector Autoregressive (MSVAR) model, impulse response function tests, and variance decomposition analysis. This research aims to understand the initial effects of the exchange rate policy. Consequently, the results revealed that within the nonlinear approach, the effect of oil prices is stronger than that of exchange rates on inflation in both systems. Also, the current exchange rate policy shows some positive effects on inflation in the short term, especially under the buoyant system. Finally, the variance component analysis confirms that oil price fluctuations explain a high percentage of inflation fluctuations (in the short, medium, and long term) in both systems. In contrast, exchange rate fluctuations explain inflation fluctuations at lower rates across all periods in both systems.

Keywords: Exchange rate regime; Inflation; MSVAR model;Algeria

Type:  Article.

Journal: Strategy and Development review

Abstract

Choosing an appropriate exchange rate regime is crucial for economic policy, particularly for developing countries seeking to establish robust macroeconomic frameworks to mitigate external shocks. However, such nations, including those reliant on oil and natural gas exports, often face challenges in selecting suitable regimes, exacerbated by a lack of traditional advice. The debate around this issue intensified in the aftermath of the 2014 oil price decline. In response, Jeffrey Frankel proposed the currency-plus-commodity basket (CCB) arrangement in 2017, blending the benefits of floating and pegging. This study applies the CCB system to Algeria, aiming to evaluate its impact compared to the current managed floating regime from 2001 to 2021, on indicators of internal (inflation rates) and external (change in foreign exchange reserves) balance using monthly data. Employing wavelet analysis and robustness tests, specifically quantile-on-quantile regression (QQR), the findings suggest that the CCB regime surpasses managed floating in maintaining monetary stability and achieving internal and external balance. Moreover, it provides greater flexibility and stimulates the domestic economy through its ability to stabilize terms of trade via active countercyclical monetary policy. Nonetheless, further discussion, adjustment, experimentation, and development of the proposed regime are warranted.

Keywords: Exchange rate system, currency-plus-commodity basket, wavelet analysis, quantile-on-quantile regression, inflation rates, foreign exchange reserves, Algeria.

Type:  Article.

Journal: Financial Markets, Institutions and Risks (FMIR)

Abstract

 Maintaining high standards in socio-economic research and achieving leadership positions in scientific circles requires a scientist to have a perfect command of mathematical tools developing accurate forecasts. Traditional forecasting methods typically involve fitting data to a pre-established relationship between dependent and independent variables, often making specific assumptions about a stochastic process. In contrast, machine learning presents an alternative approach to statistical analysis and forecasting, emphasising a data-driven methodology that does not assume any predefined statistical relationships in the data. The ARIMA method is recognised as the most effective forecasting method in the social sciences and is widely used for analyzing time series data. At the same time, deep learning methods (neural network models) are now forming a serious alternative to traditional econometric models, including ARIMA, as they can exploit nonlinear patterns in the data, which are often hidden from standard linear models. The aim of this study is to evaluate the performance of different neural network (NN) models compared to ARIMA models for economic forecasting. Five different network architectures are studied: Multilayer Perceptron (MLP), Simple Recurrent Neural Network (Simple RNN), Long Short-Term Memory Network (LSTM), Bidirectional LSTM (BILSTM), Convolutional Neural Networks (CNN). The performance of these models is compared with two benchmark ARIMA models: ARIMA based on AIC criteria (ARIMA-AIC) and ARIMA based on BIC criteria (ARIMA-BIC). The performance of these models is compared with two benchmark ARIMA models: ARIMA based on AIC criteria (ARIMA-AIC) and ARIMA based on BIC criteria (ARIMA-BIC). Prior training the NN models, hyperparameters were fine-tuned to obtain optimal performance for each model. The models’ performance on out-of-sample forecasting (test dataset) was evaluated using two metrics: RMSE (root mean square error) and MAE (mean absolute error). The data used to test the effectiveness of these models were monthly year-on-year consumer price inflation data in Algeria. The results show that the MLP model outperformed other models, including the benchmark, in the short and medium term (6-12 months). At the outperformed same time, the LSTM model outperformed all other models, including the benchmarks, in the long term (18-24 month forecasting horizon). Although Simple RNN models performed well in short-term forecasting, their performance deteriorated with the increase in the forecasting horizon. For the benchmark models, the forecasting results were the worst among all models, even in the short term. As a result, MLP and LSTM models were found to be the most appropriate for forecasting Algerian inflation, and deep learning is a promising alternative to traditional time series forecasting methods.

Keywords: Exchange rate regime, Currencies-Plus-Commodity Basket, Wavelet analysis, Quantile-on-Quantile regression, Inflation rates, Foreign exchange reserves, Algeria.

Type:  Article.

Journal: Business Ethics and Leadership (BEL).

Abstract

 This study aims to investigate the macroeconomic effect of oil price shock in Algeria at different levels of oil dependency. To do this, an extensive version of small open DSGE model developed by Medina and Soto (2005) has been used. This version of DSGE model is attentive to the fact that the Algerian economic structure is characterized by oil dependency, among other structural characteristics. After we calibrate model parameters, this paper presents simulation results for positive oil price shock to illustrate how the structure of the model and its theoretical underpinnings shape the transmission of the shock to real variables of the domestic economy. In particular, the paper shows 3D impulse responses for oil price shock and characterizes their impact on real GDP, CPI inflation, external position, and real effective exchange rate. The results show that when the level of oil dependency changes, real oil price shock affects differently on the key macroeconomic variables. High oil dependence makes the economy more vulnerable to oil price fluctuations compared to low oil dependence. Therefore, structural transformation is a clear necessity for the Algerian economy.

Keywords: Business Cycles Fluctuation, oil-exporting economy, DSGE Model, oil dependence, Algeria.

Type:  Article.

Journal: Les Cahiers du CREAD.

Abstract 

This paper aims to analyze and evaluate the role of fiscal and monetary policy interaction in confronting the negative effects of oil price fluctuations on macroeconomic variables in oil-exporting economies. To do this, the small open DSGE model developed by Median and Soto (2005) has been expanded to fit the structural characteristics of the Algerian economy as an oil-exporting economy. Using the Calibration Method, we simulate the effect of a random positive shock in oil prices under four different interactions of monetary and fiscal policy. The results show that the adoption of a pro-cyclical fiscal policy by fiscal authority along with CPI inflation targeting by the Central Bank is the most appropriate combination, among the four combinations studied, to reduce the negative effects of oil prices.

Keywords: oil-exporting economy, monetary policy, fiscal policy, exchange rate, oil price shock, Algeria.

Type:  Article.

Journal:  International Journal of Economic Studies.

Abstract

This paper aims to estimate the hybrid New Keynesian Phillips curve for Algeria in the period 1994-2011. In the first part, the hybrid New Keynesian Phillips curve is discussed theoretically to highlight the equation to be estimated. The second part is devoted to the presentation of the data. The obtained results confirm those obtained in the literature. Our data analysis suggests that the nature of inflation dynamics in Algeria doesn’t match the hybrid New Keynesian Phillips curve.

Keywords: Inflation, Phillips curve, Output gap, Algeria.

Type: Article

Journal : Les Cahiers du CREAD.

Abstract

This study aims to evaluate the performance of monetary policy under oil price fluctuation for the Algerian economy in the period 2001 - 2015. To do this The model SVAR (3) has been estimated on quarterly data and used the impulse response function and the variance decomposition. The results showed that the positive oil price shock has a significant positive effect on the output gap and a positive nonstatistical significant effect on inflation. For monetary policy, Unlike the stated goals of the monetary authorities, the results showed the failure of monetary policy in the interaction with the target variables (inflation, output), while it recorded a positive and significant response to the oil prices shock. These results proved that, during the period of this study, the performance of monetary policy in Algeria, was marked by limited effectiveness in reaching the desired results.

Keywords: Oil prices shock, Monetary policy,SVAR model, Algerian economy

Type: Article

Journal : Innovation Journal.

Abstract 

The financial sector is often seen as the economic nervous system. Various theoretical literature underscores the significance of financial services provided by the financial system in propelling industrialization and development. In the early 1990s, Algeria embarked on financial sector liberalization to enhance its contribution and activate its role in economic financing. This paper intends to examine the influence of financial sector development on the growth of Algeria's manufacturing sector from 1999 to 2019. The results of the ARDL model estimation reveal that the volume of loans extended to the private sector and the money supply exert a negative impact on the long-term performance of the industrial sector (MVA). Conversely, an increase in the nominal interest rate demonstrates a positive effect on the added value in the manufacturing sector.

Keywords: Financial development, industrial sector, Algerian economy, ARDL model.

Type:  Book Chapter.

Book: Manufacturing Sector in Algeria