Dynamics of Algeria’s international reserves

Abstract

Purpose The purpose of this paper is to explore the determinants of international reserves in Algeria using economic growth and real effective exchange rate variables. The paper used quarterly data from 1985Q1 to 2014Q4. Design/methodology/approach The study employs autoregressive distributed lag (ARDL) approach known as the bounds testing method. The ARDL technique works well for small sample studies also. The current study assesses the influence of economic growth and real effective exchange rates on international reserves in Algeria by evaluating both short-run and long-run dynamics. Findings The study establishes a long-run relationship between international reserves, economic growth and real effective exchange rate. It also reveals that economic growth has a positive impact on international reserves while real effective exchange rate shows a negative effect. Originality/value This paper tries to provide a complete picture of the determinants of international reserves in Algeria. Foreign trade policy makers of Algeria can use the model estimated here to draw pertinent policies regarding international reserves.