The Impact Of Oil Price Shock Of 2014 On The Exchange Rate In Algeria: Vector Autoregressive Model

The objective of this paper is to analyze the effects of oil price shock on exchange rate of dinar versus US dollar with an empirical analysis using a VAR Model (Vector Autoregressive Model) based on monthly data from June 2012 to December 2016. The findings showed that oil prices exert a significant effect on exchange rate. A 1% decrease in oil price would lead the Algerian Dinar to depreciate to 0.10% against US Dollar. Granger Causality Test results indicate that there is a unidirectional causality running from oil price to exchange rate. This is consistent with the theory that decrease in oil price will depreciate the exchange rate. In fact, low oil prices generally provoke a large depreciation of exchange rates in oil-exporting countries. This evidence is clearly established in the Algerian case.