Influence of inflation on output fluctuations: Empirical study in case of Algeria using ARDL model

Abstract

The purpose of this paper is to empirically investigate the effect of inflation on GDP fluctuation in Algeria using ARDL model during the period 1980-2018. We have found that Bank of Algeria didn't succeed in reducing inflation rates, even after its adoption of the inflation targeting policy starting in 2011. The empirical study showed that there is a negative and significant effect of inflation on output gap in the long-run, when the inflation rate falls, the output gap increases significantly, making inflation affect negatively on output fluctuations. Also, the results showed that the increase of money supply lead to the expansion of output gap.