Oil Price Distortion and Their Impact on Algerian Macroeconomic

Abstract

The aim of this study is to investigate the impact of Oil Prices distortion on Algerian Macroeconomics during the period (1980 to 2011). Using a Vector Error Correction Model (VECM); the impact of oil price fluctuation on five macroeconomic variables was examined. The results show that Oil Prices have no important Impact on the most variables during the short term with the exception that they have a positive effect on inflation and negative effect on real effective exchange rate. The result of Variance Decomposition analysis VD is consistent with the Impulse Response Function IRF in that there is a Positive Impact in Long-term of Oil Prices on The RGDP and INF. On the other hand; there is a Negative Impact on REER and UNE; with no effect at all on M2.Finally; The Study Recommends the importance of adopting a policy that allows reducing the dependence on the Oil Sector through diversification of income sources which; in turn; helps to raise real GDP; absorb Unemployment in The Local Economy; and reduce Inflationary pressures.