Impact of external trade elasticities on exchange rate and current account balance in Algeria Econometric study 1990-2021

Abstract

The general aim of this thesis is to present, describe and calculate right values of trade elasticites before involve last values to trigger another values of the real exchange rate applied in Algeria. Calculating optimal values of trade elasticites is done in both import and export sides. To reach the aforementioned purpose, we used both yearly and monthly data from 1990 to 2021 for exchange rates , current account balance from Algerian customs and bank of Algeria . Additionally, it has been known that the economic relationship between import time series and exchange rate time series is negative, in other words , the more the imports go up the more the exchange rate go down ,the invese is correct. Since the coefficient given through a least square regression run between old imports values and old exchange rates is positive, this in contradiction with economic theory. After generating new values of exchange rates, it remains to check whether the coefficient given through a least square regression run between old imports values and old exchange rates remains positive or get a negative signal which considered the natural sign. In this thesis, two essays are presented in econometric ways about the impact of trade elasticity on the exchange rate on the one hand and the impact of trade elasticity on the trade balance on the other. In the first essay, I constructed a useful adjustment of the exchange rate to its equilibrium rate. This indicator will be useful to calculate the gain or deficit in the Algerian trade balance. Results obtained from the new least ordinary square run between new values of import and new values of exchange rates is negative. The last result is good indicator about the performance of new values’s exchange rates, thanks to new values of exchange rate high level of import has been reduced .in export side, the new values of exchange rates help to inhance the level of export, consequently old level of deficits recored has been lowered.