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Appendix 1. Theoretical Model
Appendix 2. Data
Appendix 3. Econometric Results
Oumar Diallo is an economist in the Development Policy and Analysis Division/Department of Economic and Social Affairs (DPAD/DESA) of the United Nations Secretariat. The views and opinions expressed in the paper are those of the author and do not necessarily reflect those of the United Nations Secretariat. We would like to thank Laurence Allain, Domenico Fanizza, Gabriel Sensenbrenner, Leonce Ndikumana, Tashin Saadi-Sedik, Jacques Bougha Hagbe, and Juan Zalduendo for useful comments and suggestions.
Sonatrach’s activities include petroleum exploration, oil and gas production and marketing, and pipeline transportation. Algeria’s exchange rate regime is a managed float with no pre-announced path of the exchange rate.
Because of the high positive correlation between gas and oil prices, we use oil prices as a proxy for hydrocarbon prices.
In total, the public investment program for 2005–09 amounts to about $140 billion (about 140 percent of 2005 GDP).
Our theoretical model falls into the category of the behavioral equilibrium exchange rate (BEER) models.
Cashin and others consider only one representative agent: the household.
We assume that there is no distinction between consumption and investment. The final good can be either consumed or invested
Another way of addressing the small sample bias is the bootstrap procedure to estimate the p-value of the test statistic. Using the BDS test and the bootstrap procedure, we check whether the estimated residuals are independent and identically distributed (iid). The results show that the residuals are iid.
The results of the Granger Causality test should be interpreted with caution as the findings are only suggestive rather than conclusive about the causality between two variables. Granger causality captures precedence and information content and does not always have the general meaning of the term.
Increasing imports of consumer goods and equipment could improve the productivity of the nontradable goods and contribute to decrease the price of nontradables.
Since much of the current public spending and a non-negligible share of capital spending fall on nontradables in Algeria, we assume that the share of non-traded goods in government spending is much higher than that the share of non-traded goods in private spending, just as in many other developing countries.
In the model, the foreign region does mean the rest of the world. The rest of the world also includes other countries producing the primary commodity.
For the sake of simplicity, we assume that public spending as a share of total aggregate demand in the foreign country is the same as in the home country. Relaxing this assumption complicates the mathematics without generating additional interesting results.