Capturing the Fluctuations of Some Algerian Macroeconomic Variables Using New Keynesian Model for Small Open Economy for the Period 2000-2018: A BVAR-DSGE Approach

Abstract

In this study, we estimated and simulated an NKDSGE model for Algeria based on the method through which a small open economy should react to economic. The model consists of hybrid equations for the IS curve, Phillips curve, exchange rate equation and monetary policy based on Taylor's type. We estimated the system of equations by the BVAR technique on quarterly Algerian macroeconomic data from 2000 to 2018. We have then used the estimated parameter values in the simulation to capture the impact of foreign shocks for: inflation, output, technology, trade terms and monetary policy on the Algerian macroeconomic. The results confirmed that all foreign shocks contributed to the fluctuations of domestic GDP, domestic inflation and exchange rate through simultaneous economic cycles between 2-4 years except the worldwide output shock, which lasted about 10 years. The monetary rule appeared to play its role each time with a faithful memory of the historical interest rate without giving much weight to the exchange rate, domestic output and inflation.