An Econometric Study of the Impact of Exchange Rate Changes on Imports

Abstract

Changes in the exchange rate affect many macroeconomic variables, where the depreciation of the exchange rate leads to the effects of economic activity through the rise in the prices of foreign goods, "imports" for domestic goods, which leads to the reluctance of the decimating Local yen for foreign goods, leading to increased international competitiveness of domestic goods, high export volume and reduced imports, all resulting in improved trade deficits. Among other things, the decline in local currency exchange rates can be accompanied by deflationary effects on the gross domestic product (GDP) through a decline in the purchase of export and import prices, which occurs in developing countries such as Algeria. This analysis, which delves into a crucial aspect of international trade, examined the impact of exchange rate fluctuations on imports in Algeria from 1990 to 2021. The methodology used was the self-slope technique, also known as Vector Autoregression (VAR), which relied on two crucial variables: the real exchange rate, which measures the amount of foreign goods needed to buy one unit of domestic goods. Similar to a market research analyst, it is important to consider the impact of imports at the local level. This includes goods and services sourced from foreign countries to meet domestic market and consumers' demands, especially during ongoing local protests. The analysis has found a negative and non-significant relationship between the real exchange rate and imports at a significance level of 5%, which means that the real exchange rate does not affect Algerian imports, as most Algerian imports are basic food commodities. These intermediate and productive goods cannot be dispensed without a local alternative. Hence, it indicates that fluctuations in exchange rates have no impact on Algerian imports.

Keywords

• exchange rates
• imports
• autoregressive x-ray technology
• real exchange rate
• vector autoregression
• algeria