The Effect Of Exchange Rate On Domestic Inflation, Empirical Evidence From Algeria

Abstract

Abstract: The exchange rate has taken more interest in recent years, especially with theactive globalization of international markets and the increased growth of internationaltrade, specialists have recently devoted much attention for studying exchange rate pass-through to domestic prices and inflation. Knowing the effect of the exchange rate on domestic inflation may help monetary policymakers to effectively monitor inflation and inflation expectation towards the value of inflation targeted by the central bank, This study examines the relationship between the nominal effective exchange rate and the inflation in Algeria,as well as the estimation of the short run and the long run inflation dynamic. the results based on bound testing and error correction mechanism confirm that a stable, long run relationship exists between nominal effective exchange rate and inflation in the long run. .