An Application of ARDL Bounds Testing Approach to the Estimation of Level Relationship between Inflation, Economic Activity and Oil Price in Algeria

Abstract

The present paper analyzes the relationship between CPI, GDP & oil prices by adopting ARDL bounds testing approach in Algeria over the period 1970 - 2018. The findings indicate there is a cointegration relationship between variables, which allows us to estimate the ECM, at the short run GDP affects consumer price inflation positively only after one lag period at 1% of significance. While, at the long run both oil prices and GDP have an impact on consumer price inflation and those effects are economically significant ( & insignificant , respectively) . Hence an increase in oil prices in Algeria would raise the volume of exports, which may increase the GDP and subsequently, CPI follows as well.