MONETARY POLICY AND ENVIRONMENTAL SUSTAINABILITY IN ALGERIA: MEASURES FOR A GREEN TRANSITION

Abstract

This study investigates the relationship between Algeria’s fossil fuel-dependent economic growth and its Ecological footprint (EF), an increasingly pressing issue for resource-rich economies. By employing the Quantile Autoregressive Distributed Lag (QARDL) model, the analysis captures the asymmetric effects of key macroeconomic variables across different levels (quantiles) of EF. The findings demonstrate that a contraction in the money supply (M1) contributes to a reduction in ecological footprint at higher quantiles (τ = 0.50), indicating that monetary tightening becomes more effective in mitigating environmental pressures when ecological degradation is already significant. In contrast, economic growth, measured through real GDP, consistently leads to an increase in the ecological footprint across all quantiles, reaffirming the environmental cost of growth strategies reliant on fossil fuel exploitation.

Based on these findings, the study proposes several policy recommendations tailored to Algeria’s context. These include promoting the issuance of green bonds to finance environmentally sustainable projects, and introducing differential reserve requirements for highly polluting industries, thereby discouraging excessive credit allocation to environmentally harmful sectors. By integrating monetary policy tools with environmental objectives, Algeria can better balance economic development with ecological sustainability.

This research contributes to the scarce literature on ecological impacts in resource-dependent economies, offering nuanced insights into how macroeconomic policies influence environmental outcomes, and providing a framework for sustainable policy design in similar national contexts.