Parallel Exchange Rate and Money Demand in Algeria (1990–2024)

Habibi, Zineb; Bouteldja, Abdelnacer; Benbouziane, Mohamed

les cahiers du mecas
Volume 22, Numéro 1, Pages 393-407
2026-06-02

Parallel Exchange Rate And Money Demand In Algeria (1990–2024)

Authors : Habibi Zineb . Bouteldja Abdelnacer . Benbouziane Mohamed .

Abstract

This study examines how fluctuations in Algeria’s parallel exchange rate affect broad money demand (M2). The topic is particularly relevant in Algeria’s foreign-exchange setting, which is characterized by regulatory controls and a dual exchange-rate system (official and parallel), with a gap between the two rates widening notably since the 1994 economic reforms. Our analysis relies on quarterly data covering 1990–2024. To estimate the relationship between money demand and its determinants, the paper employs an Autoregressive Distributed Lag (ARDL) approach, which accommodates mixed orders of integration and allows a clear distinction between short-run dynamics and long-run relationships. The findings indicate that movements in the parallel exchange rate are significantly associated with short-run changes in real money demand, whereas the long-run relationship is mainly driven by fundamentals such as income and the price level. Diagnostic and stability tests support the adequacy of the estimated specification.