The goal of this study is to investigate the relationship between oil price and the nominal US Dollar/Algerian Dinar exchange rate through an empirical analysis using a VAR Model (Vector Autoregressive Model) upon monthly data for the period 2003-2013. Results show that a cointegration relationship is not detected between the oil and exchange rate in Algeria. However, the estimation of a VAR model indicates that a 1% increase in oil price would tend to depreciate Algerian Dinar against US Dollar by nearly 0.35%. This negative impact emphasizes how the Algerian dinar is a non-oil currency and explains how the foreign exchange receipts from hydrocarbon exports help swell Algerian public spending that would cater for public budget deficit curtailment.
Topics in Middle Eastern and North African Economies, electronic journal, Volume 16, Middle East Economic Association and Loyola University Chicago, May, 2014, http://www.luc.edu/orgs/meea/
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