The dynamic nexus between oil price fluctuations, exchange rate volatility, and economic growth: empirical evidence from Algeria

This study aims to investigate the impact of oil price fluctuations and real effective exchange rate volatility on Algeria’s economic growth during the period 1970-2024. To achieve this objective, the study employed a hybrid econometric app roach, utilizing GARCH (1,1) models to measure volatility and a Vector Error Correction Model (VECM) to analyze long-term and short-term causal relationships. The empirical results reveal a significant long-term relationship between the variables, where oil price shocks significantly dictate the trajectory of the Algerian GDP. Furthermore, the findings indicate that exchange rate volatility exerts a restrictive effect on economic diversification. The study concludes with several policy recommendations, emphasizing the necessity of reducing oil dependency and stabilizing the exchange rate to foster sustainable growth.