Oil price and exchange rate nexus in Algeria: evidence from nonlinear asymmetric and frequency domain approach

Abstract

Purpose This paper aims to examine the relationship between exchange rate and oil prices in Algeria over the period 2004Q1–2019Q4. Design/methodology/approach The nonlinear autoregressive distributed lag method is used to capture the potential asymmetric relationship among oil prices and the exchange rate. Frequency domain spectral Granger causality test is also applied to investigate the causal linkage between the two variables. The wavelet coherence is applied to analyze the evolution of this relationship both in time and frequency domains. Findings The empirical results reveal evidence of long-run asymmetric effects of oil price on Algeria’s real effective exchange rate (REER), implying that an increase in oil price causes a real exchange rate to appreciate, while a decrease in oil price leads to a real exchange rate to depreciate. More specifically, it is found that the impact of negative oil price shocks is higher than the one associated with positive shocks. The spectral Granger causality results further indicate that there is unidirectional causality running from oil price to REER in both medium and long run. The wavelet coherence findings provide evidence of some co-movement between the REER and oil price and point out that the oil price is leading real exchange rate in the medium and long terms. Originality/value This study contributes to the literature by investigating the asymmetric impact and the time domain causal linkage between oil price fluctuations and real exchange rate in Algeria.

Oil prices, news-based uncertainty measures and exchange rate returns in BRICS countries

“…Following this theoretical backdrop, recent studies have examined the predictive influence of oil price on the exchange rate via a different approach (Tiwari et al , 2013; Basher et al , 2015; Jammazi et al , 2015; Baghestani et al , 2019; Huang et al , 2020; Satish, 2019; Huiming and Xiuyun, 2019; Balcilar and Usman, 2021; Devpura, 2021; Balcilar et al , 2021; Salisu et al , 2020; Chekouri et al , 2021; Onodje et al , 2022). In BRICS countries, Baghestani et al’s (2019) directional forecasting approach shows oil price predictive power on the BRICS’ exchange rate for the period 2008–2017, while Salisu et al ’s (2020) symmetric and asymmetric predictive model shows that oil price is a good predictor of the exchange rate.…”

Assessing Algerian government support for sustainable development goals: A study from 2000 to 2022

“…*The significant drop in oil prices has severely impacted the revenues of the Algerian government (Chelghoum et al, 2023). The significant drop in oil prices since mid-2014 has had a profound impact on the revenues of the Algerian government, deeply affecting the country's economic stability (Chekouri et al, 2021). Algeria, heavily reliant on oil for its revenue, saw a dramatic fall in earnings as oil prices dropped from the $80-110 per barrel range in 2011-2013 to $40-60 per barrel during most of 2015-2017.…”