Prices Dynamics In Algeria; A Fiscal Theory Of Price Level Analysis

In this article, we tried to determine the origin of inflation in Algeria in base ourselves on the fiscal theory of price level, for the case of Algeria during the period 1989-2013. For this purpose, we have estimated a VEC Model and a VAR model in order to identify the relation between the government liabilities and the primary budget balance. Then to determine if inflation is of budgetary or monetary origin, we have using the VAR model and the variance error decomposition. Lastly, in the aim of analyzing the monetary authorities’ behavior towards inflation, we used two models VAR in order to study the impulse response to evaluate the response of the monetary instruments (money base, rediscount rate) to an innovation in inflation. According to our results, Algeria's inflation is budgetary origin due to the recourse to the internal debt and the dominating regime is an active fiscal policy and an active monetary policy.