Oil Price Shocks Pass-through Into Inflation in Algeria: assessing the relative importance of the transmission channels using structural Var-x

Abstract

The present research paper seeks to investigate the channels through which oil price shocks pass-through into inflation in Algeria between 2002 and 2021 by focusing on the relative importance of each channel. The methodology we adopt here attempts to disentangle the possible effects of these channels on inflation after experiencing an oil price shock. Our results indicate the relative importance of three channels depending on the time horizon basis. In the short-run, the channels can be ranked as follows: (1) Public spending channel (2) Exchange rate channel and (3) the Money supply channel. In the long-run, we found the following ranking: (1) Money supply channel (2) Exchange rate channel and (3) Public spending channel. Taking into consideration the most relevant shocks the Algerian economy has gone through between 2002 and 2021, we emphasized the role and the importance of the public spending channel.