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The double whammy of COVID-19 and oil price collapse: Spillover effects on inflation and exchange rates

Author

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  • Aissa Djedaiet

    (Assistant professor, Department of economics, Djilali Bounaama University, Khemis Miliana, Algeria)

  • Hicham Ayad

    (Lecturer, Department of economics, The University Center in Maghnia, Algeria)

Abstract

The paper addresses two main issues. What is the response of the Algerian exchange rate (REER) to the double whammy of COVID-19 and oil price collapse? To what extent can the previous combination spill over into the inflation rate? For this purpose, we use monthly data covering the period January 2010 to June 2021, and we run both ARDL and NARDL models. The results show that the oil price and its shocks have a clear effect on inflation in both linear and non-linear modeling, especially in the short term. While there seems to be some inconsistencies concerning the influence of oil prices on REER and REER on inflation, owing mainly to the dinar devaluation policy, lower import bills, and the phase-out of basic commodities subsidies. The evidence also clearly reveals that the COVID-19 pandemic has a substantial negative effect on the REER and a positive effect on the inflation rate in the short term linear estimation.

Suggested Citation

  • Aissa Djedaiet & Hicham Ayad, "undated". "The double whammy of COVID-19 and oil price collapse: Spillover effects on inflation and exchange rates," Review of Socio - Economic Perspectives 202206, Reviewsep.
    • Handle: RePEc:aly:journl:202206
    DOI: https://doi.org/10.19275/RSEP126
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    Cited by:

    1. Chenini Moussa & Ayad Hicham & Attouchi Manel & Dahmani Mohamed Driouche, 2023. "Testing the Validity of Okun’s Law in Algeria: Is there a difference between Maki’s Cointegration and Quantile’s Regression Results?," Folia Oeconomica Stetinensia, Sciendo, vol. 23(1), pages 42-63, June.

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    More about this item

    Keywords

    Algeria; COVID-19; Oil Price shocks; Exchange Rate; Inflation Rate; ARDL; NARDL;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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