INFLATION TARGETING IN ALGERIA: OBSTACLES AND OPPORTUNITIES
DOI:
https://doi.org/10.15407/economyukr.2024.11.029Keywords:
Inflation Targeting; Monetary policy; Taylor Rule; GMMAbstract
This article analyzes the feasibility of inflation targeting (IT) in Algeria using data from Q1 2000 to Q4 2021. IT is widely used, although its efficacy in emerging areas, notably MENA, is disputed. Algerian monetary policy dynamics and the central bank's response to inflation and production changes are examined using Taylor Rule and GMM. The Bank of Algeria appears to value interest rate smoothing above short-term economic instability. The central bank's aggressive response to inflation goal deviations supports its price stability promise in an IT environment. The research shows a lower focus on production stability, possibly due to the oil-dependent economy and labor market rigidities. The study finds that Algeria's monetary policy has IT aspects, but its efficacy depends on its economic setting and institutional architecture. To further comprehend Algeria's macroeconomic stabilization efforts, future study should examine global economic circumstances, commodity price volatility, and monetary and fiscal policy. This study adds to the discussion on IT's usefulness in emerging economies by highlighting the necessity to address economic conditions and institutional frameworks. IT may help stabilize prices in Algeria, but executing this monetary policy framework in a unique economic setting is difficult.
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