The Impact of Foreign Exchange Reserves Accumulation on Inflation : The Algerian Experience

Hachi Naouri

Abstract

This research investigates the Impact of foreign exchange reserves accumulation on inflation rates in Algeria during the period of: 2000-2020. The present paper has used Ordinary Least Squares OLS as a method for estimation. The paper concludes with the following result, in which a 1% increase in foreign exchange reserves will raise the inflation rate by 0.55%.Whereas, for the sstability tests, the results indicated that there is no co-integration between the two variables. Also, the response batch equations of VAR model have been used to analyze the relationship between the two variables of this study. The occurrence of a positive shock in the foreign exchange reserves leads to a positive, non-immediate effect on the inflation rate. For instance, the results showed that they were consistent with logic and economic theory.