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

Aissa Djedaiet1,• , Hicham Ayad 2,•
1 Assistant professor, Department of economics, Djilali Bounaama University, Khemis Miliana, Algeria
2 Lecturer, Department of economics, The University Center in Maghnia, Algeria

Article History
Received: 12 March 2022 Revised: 16 May 2022 Accepted: 20 May 2022 Available Online: 1 June 2022

Keywords: Algeria, COVID-19, Oil Price shocks, Exchange Rate, Inflation Rate, ARDL, NARDL
JEL classification: C32, F31, E31

Citation: Djedaiet, A. & Ayad, H. (2022). The double whammy of COVID-19 and oil price collapse: Spillover effects on inflation and exchange rates, Review of Socio-Economic Perspectives, Vol 7(2), 11-23.

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.

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