MONETARY POLICY TRANSMISSION IN ALGERIA: NONLINEAR EVIDENCE POST-COVID INFLATION

Abstract

This study investigates the effectiveness of monetary policy transmission in Algeria under post-COVID inflation dynamics during the period 2000–2024. The research aims to assess whether conventional monetary instruments, particularly interest-rate adjustments, are capable of stabilizing inflation in a resource-dependent emerging economy characterized by shallow financial markets, exchange-rate vulnerability, and structural rigidities. The study applies Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) models to examine both symmetric and asymmetric monetary transmission effects. Inflation is modeled as a function of interest rates, broad money supply, exchange rates, economic growth, and the COVID-19 shock. The empirical findings indicate that the conventional interest-rate channel remains weak and statistically insignificant in a linear specification, whereas exchange-rate depreciation and monetary expansion exert significant inflationary effects. The nonlinear results reveal asymmetric transmission, showing that monetary tightening has a stronger disinflationary impact than monetary easing. The study concludes that effective inflation stabilization in Algeria requires a broader and more coordinated macroeconomic policy framework.