The Purchasing Power Parity in The Maghreb Countries : A Nonlinear Perspective

The main objective of this paper is to test the validity of the purchasing power parity in the Maghreb countries (namely, Algeria, Morocco and Tunisia). We apply the threshold autoregressive non-linear model (TAR) proposed by Caner and Hansen (2001). First, a review of literature on PPP is presented, analysing its empirical validity and the econometric techniques that have been applied. After that, and investigating for the joint hypothesis of nonlinearity and non-stationarity in the exchange rate behaviour, the TAR model is presented and used for the PPP in the Maghreb countries. The results indicate that the RER shows nonlinear behaviour. Moreover, The Moroccan Tunisian (DH/DT) bilateral exchange rate is found to be highly persistent and follows a random walk, whereas the two others(Algerian Moroccan and Algerian Tunisian bilateral real exchange rates) are characterised by partial unit roots. This implies that PPP holds in one threshold regime but not in the other.Purchasing Power Parity (PPP) - Real Exchange Rate (RER) Threshold Autoregressive Model (TAR) - Non-linearity- Maghreb countries

Stabilization fund and fiscal policy : Evidence from Algeria

The aim of this paper is to examine if the presence of stabilization funds helps Algeria –as an oil rich economy- to stabilize their expenditures and address the pro-cyclical behaviour of fiscal policy, using Autoregressive Distributed Lag (ARDL) model for the period 1984-2016. Alike other oil countries, government spending in Algeria is considered to be strongly pro-cyclical .The results show that the establishment of stabilization fund in Algeria has not contributed to reduce the government spending pro-cyclicality. This is due to the absence of a rule that limits the withdrawals from the fund to finance budget deficit. Keywords: Stabilization Fund, pro-cyclicality, government expenditure,  Institutional Quality, ARDL bounds test approach, Algeria.   French Title: Les fonds de stabilisation et la politique budgetaire: Cas de l’Algerie L'objectif de cet article est d'examiner si la présence de fonds de stabilisation aide l'Algérie - en tant qu'économie riche en pétrole - à stabiliser ses dépenses et à reduire le comportement procyclique de la politique budgétaire. Un modèle autorégressif à retards échelonnés ARDL est utilisé durant la période 1984-2016.Les résultats montrent que la création d'un fond de stabilisation en Algérie n'a pas contribué à réduire la procyclicalité des dépenses publiques. Cela s'explique en partie par l'absence de règle limitant les retraits du fonds pour financer Le budget de l'État. Mots Clés : Fonds de stabilization, procyclicalité, modèle ARDL, L'environnement institutionnel, Algerie

Oil rents and institutional quality: empirical evidence from Algeria

This paper examines the interaction between natural resource abundance and institutional quality in Algeria, using two measures of institutional quality (corruption and democratic accountability), and a measures for resource endowment (oil rents as a percentage of GDP). Our results indicate that an increase in oil rents significantly increase corruption in Algeria, while the interaction effect between oil rents and democratic accountability is positive and statistically significant, which means that enhancing democratic institutions can reduce corruption. It is also revealed that the manufactures exports significantly decline in the aftermath of oil rents shock, a pattern consistent with the Dutch Disease phenomenon. On the one hand, these findings confirms that Algeria’s institutional framework demonstrates a high degree of perceived weakness, and on the other hand, enhancing these institutional environment would reduce corruption, and increase the impact of resource abundance on economic development

Money and prices in the Maghreb countries: cointegration and causality analyses

Inflation has been the major global economic problem for most economies throughout the world over the last three decades. It affects individuals, businesses and governments. Many competing hypotheses have been advanced in the literature to explain its causes and give the appropriate remedial policies. One of these hypotheses is central to the quantity theory of money. According to this hypothesis, inflation results solely from a maintained expansion of the money stock at rates in excess of increases in the amount of money demanded in the economy. The paper examines the money-price relationship in the Three Maghreb countries (namely Algeria, Morocco and Tunisia) using Granger causality test. The results do not tend to support the quantity theorist’s view that money and prices have a long-run relationship, i.e., they do not tend to drift apart in the long run. However, as suggested by Granger (1986) money and prices could still cointegrate if other variables, which may have influenced prices, were included in the cointegration regressions. Second, the finding of a unidirectional causation from money to prices in the case of Morocco and Tunisia is in line with the monetarist’s view that money precedes and causes inflation. In fact, this finding supports Darrat’s (1986) finding that money causes inflation in Morocco and Tunisia. Thus the monetary authorities in these two countries can consider control of the money supply (M1) or (M2) to influence and control inflation. As suggested by monetarists, this can be best achieved by maintaining a steady rate of growth of the money supply, roughly corresponding to the long-run growth of the real output. Our results also show the apparent absence of causality between money and prices in the case of Algeria which is not easy to explain. A possible explanation may be that the data for the Consumer Price Index (CPI) are not reliable. This may be true given that the prices, which are reported by the authorities, are always lower than those actually paid in the market place

Portfolio Selection Using Genetic Algorithm

The selection of optimal portfolios is the central problem of financial investment decisions. Mathematically speaking, portfolio selection refers to the formulation of an objective function that determines the weights of the portfolio invested in each asset as to maximize return and minimize risk. This paper applies the method of genetic algorithm (GA) to obtain an optimal portfolio selection. However, the GA parameters are of great importance in the procedure of convergence of this algorithm towards the optimal solution such as crossover. While, a five stock portfolio example is used in this paper to illustrate the applicability and efficiency of genetic algorithm method, GA method can also be used however for a larger number of portfolio compositions. The results obtained confirm previous research studies about the validity and efficiency of genetic algorithm in selecting optimal portfolios

Financial Development and the Oil Curse: Evidence from Algeria

Most of the empirical evidence has shown that the majority of oil dependent countries have the low level of financial development; thus, they are much more volatile and exposed to the oil shocks and the so named “oil curse”. This paper aims to investigate the impact of the Algerian financial system—as one of major oil economies—on the economic growth and escaping the oil curse. Over the past two decades, Algeria has courageously attempted to modernize its financial system despite social strife and challenges posed by the large hydrocarbon sector and an inefficient public sector. In fact, various reforms have been undertaken since the early 1990s to the transition from planned to an open market economy. So, the first section provides the research background based on a theoretical model and a set of empirical studies about financial development and the oil curse. An analytical framework of the Algerian financial system evolution is provided in the second section, focusing on the two phases: 1990-1999 and 2000-2011. Finally, using an econometric growth regression model to test the impact of financial development in Algeria over the period 1980-2014, the preliminary results show that the financial development enhanced economic growth but it has not contributed in reducing the negative effect of oil rents

The Purchasing Power Parity in The Maghreb Countries : A Nonlinear Perspective

The main objective of this paper is to test the validity of the purchasing power parity in the Maghreb countries (namely, Algeria, Morocco and Tunisia). We apply the threshold autoregressive non-linear model (TAR) proposed by Caner and Hansen (2001). First, a review of literature on PPP is presented, analysing its empirical validity and the econometric techniques that have been applied. After that, and investigating for the joint hypothesis of nonlinearity and non-stationarity in the exchange rate behaviour, the TAR model is presented and used for the PPP in the Maghreb countries. The results indicate that the RER shows nonlinear behaviour. Moreover, The Moroccan Tunisian (DH/DT) bilateral exchange rate is found to be highly persistent and follows a random walk, whereas the two others(Algerian Moroccan and Algerian Tunisian bilateral real exchange rates) are characterised by partial unit roots. This implies that PPP holds in one threshold regime but not in the other