The impact of monetary policy tools in achieving monetary stability in Algeria: Approach by the ARDL model

Abstract

This study aims to evaluate the performance of monetary policy tools in terms of their impact on macroeconomic indicators to achieve monetary stability in Algeria, by studying their contribution to achieving domestic and external stability. The study found that monetary stability has experienced fluctuations from time to time due to the Algerian economy's connection to external shocks on oil prices. Therefore, the study used the Autoregressive Distributed Lag (ARDL) bound test model to determine the impact of monetary policy tools, namely the money supply, mandatory reserves, discount rate, interest rate, and real GDP on monetary stability in Algeria for the period 1990-2021, through several standard tests that concluded that the model is free from standard problems and valid for estimation. The results of the study indicate the existence of a long-term equilibrium relationship between monetary policy tools and monetary stability in Algeria, where the growth of the money supply has a positive effect on monetary stability, while the discount rate and real GDP have a negative effect on monetary stability in both the long and short term. In the short term, mandatory reserves have a positive effect on monetary stability, while interest rates have a negative effect on monetary stability.