The Effect of Currency in Circulation Outside Banks on the Consumer Price Index in Algeria During the Period (1990–2024)

Authors:

Pages: 73-83
DOI: https://doi.org/10.54664/STML8985

Abstract:

This study measures and analyzes the impact of currency in circulation outside the banking system on the consumer price index (CPI) in Algeria over a 35-year period spanning 1990 to 2024. An econometric model was estimated within the Autoregressive Distributed Lag (ARDL) cointegration framework, selected for its suitability in handling time series data of this length. The CPI was employed as the dependent variable, while currency in circulation outside the banking system, the velocity of money, and the aggregate wage bill were incorporated as explanatory variables. Both short-run and long-run relationships among these variables were subsequently estimated and examined. The results confirm the existence of a long-run equilibrium relationship between the CPI and the explanatory variables within the Algerian economy. Specifically, a 1% increase in currency in circulation outside the banking system, the velocity of money, and the aggregate wage bill is associated with increases in the CPI of approximately 2.48%, 3.23%, and 0.55%, respectively. Additionally, a one-unit shock to any of the explanatory variables produces an effect that persists for approximately 12 months before the system reverts to its long-run equilibrium.

Keywords:

currency in circulation outside banks, velocity of money, wage bill, Consumer Price Index, Algeria, ARDL model.

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