## sipea2025131

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### Hydrocarbon-driven liquidity dynamics and banking structure
- Hydrocarbon exports have been the main determinant of bank liquidity in Algeria since the 2000s.
- 2007 to 2015: high hydrocarbon prices and export revenues → large accumulation of net foreign assets and abundant banking liquidity.
  - Bank of Algeria (BA) predominantly absorbed excess liquidity via high reserve requirements and bilateral operations.
  - Fiscal savings accumulated in the FRR (“Fonds de regulation des recettes”).
- 2015 collapse of oil prices → lower deposit growth and steady decline in net foreign assets up until 2021.
  - System-wide bank liquidity declined, prompting a change in BA monetary policy regime:
    - 2016: banks began using refinancing operations; BA lowered the reserve requirement ratio significantly.
    - 2017: BA started publishing the “taux directeur”, the reference policy rate.
  - BA actions since 2017: continued bilateral absorptions when export revenues rose and injected liquidity via open market refinancing operations when necessary (e.g., during COVID-19 and in response to strong demand for government credit and falling oil prices).
- Structural asymmetry in the banking system:
  - Most assets concentrated in a few SOBs.
  - One bank of the state-owned oil enterprise receives almost all export revenues → structural liquidity surplus concentrated in that bank; the rest of the system may be in deficit.
  - BA mitigates asymmetry via bilateral absorptions with the surplus bank and broader liquidity injections via open market operations.
  - Uneven liquidity distribution reduces the effectiveness of reserve requirement adjustments.
  - Interbank market has been growing since the structural shift after 2015 but remains insufficient to fully offset system asymmetry.

### Monetary policy framework, objectives, and legal context
- BA policy tools: required reserves; open market operations with seven-day, three- and six-month auctions; bilateral absorptions; marginal lending and excess reserves deposit facilities; policy rates (“taux directeur”, discount rate, effective interest rates from open market operations); exchange rate (used occasionally; BA is price-maker in forex market).
- Intermediate objective: BA de facto targets M2 growth (implicit M2 growth objective: 8-10 percent) by adjusting reserve requirement ratio and managing bank liquidity.
- 2023 Monetary and Banking Law (MBL):
  - Four main BA objectives: (i) ensure price stability, (ii) create and maintain favorable conditions for sustained economic development, (iii) ensure monetary and financial stability and safeguard banking system safety and soundness, and (iv) support financial inclusion.
  - Formalization of emergency liquidity assistance (ELA) for solvent but illiquid banks and issuance of central bank bills as liquidity-absorbing instruments (Articles 43-47).
  - MBL provisions on monetary financing: BA allowed to provide advances to the treasury for up to 240 days within one calendar year and within the limit of 10 percent of state revenues in the previous financial year; in “exceptional and unpredictable crisis,” there are no limitations or safeguards to advances to the treasury.

### Monetary policy transmission channels and their effectiveness
- Identified channels: (i) expectations, (ii) interest rate, (iii) credit, (iv) exchange rate, (v) asset price.
- Interest rate channel:
  - Policy rates have been left unchanged for most of the time; T-bills are not marketed.
  - Interbank rates are more reactive but do not consistently follow policy rates; long periods of excess liquidity and low-rate BA absorption have led interbank rates to be structurally below policy rates and negative in real terms.
  - Recommendation: a deeper interbank market and BA liquidity operations within a narrow policy rate corridor would strengthen this channel.
- Credit channel:
  - Given BA focus on money supply growth and active liquidity management, reserve requirement and liquidity management effects on lending capacity make this channel most promising in Algeria.
  - A significant share of loans by public banks benefit from subsidized rates, reducing credit channel effectiveness.
- Exchange rate channel:
  - Money supply dominated by net foreign assets (NFA), so exchange rate changes can transmit to domestic prices; tight price controls may limit pass-through.
- Asset price channel:
  - Limited due to absence of notable capital markets or secondary markets for fixed-income securities.
- Expectations channel:
  - Difficult to measure due to lack of survey data and no regular BA communication on monetary policy decisions.

### Empirical strategy and data
- Methods: bivariate and trivariate VARs; trivariate VAR between exchange rate, net foreign assets (NFA), and inflation; Granger causality tests using VARs with four lags.
- Sample: quarterly data Q2 2002 to Q4 2024.
- Policy variables: ld_rreserv (log-difference required reserves), dl_netliquid (percentage change net liquidity injections), pc_RR_and_NetLiqAbs (percentage change net liquidity management), d_discrate (change discount rate), d_OMRcombo (change effective open market interest rate), ld_NEER (log-difference nominal effective exchange rate).
- Intermediate channels and targets: market interest rates (d_tbill3, d_tbill6, d_bond3y, d_bond10y, d_IBMrate24h, d_IBMLT), credit creation (ld_credec, ld_credpriv, ld_credCGALL), inflation (ld_cpi_yoy), real non-hydrocarbon GDP growth (ld_PIBreeelHH).
- Additional analysis: recursive structural VAR with Cholesky ordering (two lags) and exogenous variables: change in Algerian government expenditure to GDP, change in brent oil price, change in fed funds rate, change in VIX, change in log-difference of EU GDP.
- Choice of instruments: effective open market rate and net liquidity management as preferred instruments following bivariate VAR results and 2014 SIP approach.
- Chow tests around Taper Tantrum 2015 and COVID-19 do not indicate structural breaks.

### Empirical findings (transmission and targets)
- Intermediate transmission channels:
  - Liquidity management tools have a significant impact on credit to the government but no significant effect on credit to the economy or market interest rates.
    - A standard deviation increase in reserve requirements or liquidity absorptions reduces credit to the government between 2 and 4 percent.
  - Policy interest rates:
    - Discount rate: a standard deviation positive shock to the discount rate increases the 10-year bond rate by 0.06 percent.
    - Effective open market rate: a standard deviation increase increases the 3-year rate by 0.1 per cent and the 10-year rate by 0.05 percent after 4 quarters.
    - No measurable effect of policy interest rates on credit to the economy was found.
- Final targets:
  - Bivariate VAR estimations find no significant relationship between monetary policy instruments and the final targets of inflation and real non-hydrocarbon growth; relationships generally in expected direction but not statistically significant in bivariate analysis.
  - Multivariate structural VAR with exogenous controls is needed to isolate effects from external shocks and interdependencies.
- Exchange rate and NFA:
  - A shock to the nominal effective exchange rate (NEER) has a significant effect on net foreign assets (NFA); an appreciation of the exchange rate would reduce NFA and liquidity in the system.
  - A reduction of NFA can lead to lower inflation; while an appreciation of the exchange rate is associated with lower inflation, the effect is not statistically significant in some specifications.
- Liquidity absorptions and inflation:
  - A standard deviation in net liquidity absorption (1.2 percent of GDP) leads to a reduction in inflation of 0.4 percent over the next 4 quarters.
- Overall conclusion: limited monetary policy transmission in Algeria; interest rate channel is weak with no significant impact on inflation and growth; liquidity operations have stronger evidence, affecting inflation and the exchange rate but not real growth. Results are robust to alternative specifications.

### Structural impediments to transmission
- General impediments: limited financial sector depth, underdeveloped credit and capital markets, an uncompetitive financial sector, inflexible exchange rate regimes, public sector dominance, excess liquidity conditions.
- Specific Algerian features:
  - Excess liquidity in the banking system reduces effectiveness of interest rate adjustments (causes: high hydrocarbon export revenues, past fiscal injections, public sector financing through the central bank, limited demand for credit).
  - Underdeveloped financial markets: reliance on bank financing, limited capital markets, low bank penetration, absence of instruments such as repos, Treasury bills, and commercial paper.
  - Interest rate channel is limited: narrow use of policy rate changes, few rate adjustments since 2017; wide corridor between deposit rate for excess reserves (currently at 0.5 percent) and marginal lending rate (currently at 5 percent) undermines effective transmission; open market operations often executed below policy rates, yielding interbank rates consistently lower than the policy rate and real interest rates negative.
  - Fiscal dominance instances: 2017-18 central bank financing and the 2021 special financing program.

### Policy implications and recommendations
- Comprehensive reform agenda across financial markets, liquidity operations and central bank tools, central bank independence and transparency, and capacity-building; 2023 MBL provides a foundation.
- Manage excess liquidity and conduct proactive absorptions at the policy interest rate:
  - Enhance liquidity forecasting capabilities and regularly absorb excess liquidity.
  - Continue bilateral absorptions to address asymmetric liquidity distribution.
  - Execute open market operations and bilateral liquidity absorption at the policy rate.
  - Curtail reliance on central bank financing to avoid injecting liquidity and undermining monetary control.
- Enhance market-based monetary instruments and create a narrow symmetric standing facility corridor:
  - Current rates: deposit rate currently at 0.5 percent; marginal lending rate currently at 5 percent; policy rate currently at 3 percent.
  - Recommendation: a narrower +/- 2 percent symmetrical corridor around the policy rate.
  - Higher remuneration of excess reserves through the deposit facility would be transmitted to the economy.
  - Implement the ELA framework of the 2023 MBL to address residual idiosyncratic liquidity stress.
  - A clear interest rate corridor would allow market rates to converge around the central policy rate and anchor short-term rates more effectively.
- Deepen and diversify financial markets:
  - Deepen the interbank market to distribute liquidity within the banking system.
  - Establish a benchmark yield curve through regular and transparent issuance of government bonds.
  - Encourage private sector and consumer credit with well-defined prudential rules.
  - Curb cash use and progress on digital payment infrastructure.
- Strengthen BA’s independence, governance, and price stability mandate:
  - Establish an independent monetary policy committee with transparent decision-making and published meeting minutes.
  - Regular communication of monetary policy decisions to build credibility and form expectations.
  - BA expanding use of forecasting models and intends to start regular communication on monetary policy decisions.

### Key quantitative points (preserved exactly)
- Timeframes and dates: 2000s; 2007 to 2015; 2015; 2016; 2017; 2021/22; Q2 2002 to Q4 2024.
- Shares and percentages: credit to government 53 percent in 2024; government swap equivalent to 11.3 percent of GDP in 2021/22.
- Inflation: peak of 10 percent (year over year) and containment to 3 percent by end of 2024.
- BA M2 implicit target: 8-10 percent M2 growth.
- MBL monetary financing limits: advances up to 240 days within one calendar year and within the limit of 10 percent of state revenues in the previous financial year.
- VAR effects:
  - Liquidity management → reduces credit to the government between 2 and 4 percent per standard deviation shock.
  - Discount rate shock → 10-year bond rate increases by 0.06 percent (standard deviation shock).
  - Effective open market rate shock → 3-year rate increases by 0.1 per cent and 10-year rate increases by 0.05 percent after 4 quarters.
  - Net liquidity absorption standard deviation = 1.2 percent of GDP → reduces inflation by 0.4 percent over next 4 quarters.
  - Policy-rate corridor proposal: deposit rate currently at 0.5 percent; marginal lending rate currently at 5 percent; policy rate currently at 3 percent; recommended +/- 2 percent symmetric corridor around the policy rate.

*Prepared by Gian Plebani and William Gbohoui; analysis based solely on the provided IMF content unit.*

### 1.      Hydrocarbon exports have been the main determinant of bank liquidity in Algeria

### 1.      Hydrocarbon exports have been the main determinant of bank liquidity in Algeria

### Hydrocarbon-driven liquidity dynamics (2000s–2024)
- Hydrocarbon exports have been the main determinant of bank liquidity in Algeria since the 2000s.
- 2007 to 2015: high hydrocarbon prices and export revenues → large accumulation of net foreign assets and abundant banking liquidity.
  - During this period the Bank of Algeria (BA) predominantly absorbed excess liquidity.
  - BA actions: kept reserve requirements at high levels and absorbed additional liquidity in bilateral operations with banks.
  - Fiscal savings were accumulated in the FRR (“Fonds de regulation des recettes”).
- 2015 collapse of oil prices → lower deposit growth and steady decline in net foreign assets up until 2021.
  - System-wide bank liquidity declined, prompting a change in BA monetary policy regime.
  - 2016: banks began using refinancing operations; BA lowered the reserve requirement ratio significantly.
  - 2017: BA started publishing the “taux directeur”, the reference policy rate.
  - BA became more active in managing liquidity: continued bilateral absorptions when export revenues rose (e.g., post Russia-Ukraine conflict) and injected liquidity via open market refinancing operations when necessary.
  - BA injected liquidity during the COVID-19 pandemic and most recently in response to strong demand for government credit and falling oil prices.

### Government financing and banking sector structure
- Credit to the government as a share of total credit rose since 2015 and stood at 53 percent in 2024.
- 2017: Algeria resorted to direct monetary financing.
- 2021/22: government swapped 11.3 percent of GDP worth of SOE loans for government bonds with SOBs under the “Plan Spécial de Refinancement” (PSR).
- Structural asymmetry in the banking system:
  - Most assets concentrated in a few SOBs.
  - One bank of the state-owned oil enterprise receives almost all export revenues → structural liquidity surplus.
  - Rest of the system may be in deficit.
  - BA mitigates asymmetry via bilateral absorptions with the surplus bank and broader liquidity injections via open market operations.
  - Uneven liquidity distribution reduces the effectiveness of reserve requirement adjustments.
  - Interbank market has been growing since the structural shift after 2015 but remains insufficient to fully offset system asymmetry.

### Price stability and inflation
- Monetary policy broadly kept price stability despite occasional inflation spikes.
  - Post-COVID-19 global surge led to a peak of 10 percent headline inflation (year over year) and was contained down to 3 percent by end of 2024.

### Monetary policy tools, objectives, and legal framework
- BA policy tools: liquidity management, interest rates, and the exchange rate.
  - Liquidity tools: required reserves; open market operations with seven-day, three- and six-month auctions; bilateral absorptions; marginal lending and excess reserves deposit facilities.
  - Policy rates: “taux directeur” (introduced 2017), discount rate, effective interest rates from open market operations.
  - Exchange rate: used occasionally to contain price pressures; BA is price-maker in forex market.
- Intermediate objective: BA de facto targets M2 growth by adjusting reserve requirement ratio and managing bank liquidity.
  - Implicit M2 growth objective: 8-10 percent.
  - BA relies on open market operations, reserve requirement adjustments, and foreign exchange interventions to achieve balanced liquidity supply.
  - Policy interest rates have played little role; they have been left unchanged for most of the time.
- 2023 Monetary and Banking Law (MBL):
  - Four main BA objectives: (i) ensure price stability, (ii) create and maintain favorable conditions for sustained economic development, (iii) ensure monetary and financial stability and safeguard banking system safety and soundness, and (iv) support financial inclusion.
  - Institutional reorganizations and new instruments introduced: formalization of emergency liquidity assistance (ELA) for solvent but illiquid banks and issuance of central bank bills as liquidity-absorbing instruments (Articles 43-47).
  - Potential to improve macro-financial stability, interbank market functioning, and management of structural asymmetry, supporting a future interest rate–based framework.
- MBL provisions on monetary financing:
  - BA allowed to provide advances to the treasury for up to 240 days within one calendar year and within the limit of 10 percent of state revenues in the previous financial year.
  - In “exceptional and unpredictable crisis,” there are no limitations or safeguards to advances to the treasury.

### Monetary policy transmission channels (conceptual)
- Five channels: (i) expectations, (ii) interest rate, (iii) credit, (iv) exchange rate, (v) asset price.
- Interest rate channel:
  - Policy rates should affect money market rates and retail lending/deposit rates, influencing aggregate demand and prices.
  - T-bills are not marketed; policy interest rates have been stagnant for over seven years → limited effectiveness.
  - Interbank rates are more reactive but do not consistently follow policy rates; long periods of excess liquidity and low-rate BA absorption have led interbank rates to be structurally below policy rates and negative in real terms.
  - A deeper interbank market and BA liquidity operations within a narrow policy rate corridor would strengthen this channel.
- Credit channel:
  - Changes in money supply via reserve requirements and liquidity management influence banks’ reserves and lending capacity.
  - Given BA focus on money supply growth and active liquidity management, this channel is the most promising in Algeria.
  - A significant share of loans by public banks benefit from subsidized rates, reducing credit channel effectiveness.
- Exchange rate channel:
  - Money supply dominated by net foreign assets (NFA), so exchange rate changes can transmit to domestic prices.
  - Tight price controls may limit pass-through to inflation.
- Asset price channel:
  - Limited due to absence of notable capital markets or secondary markets for fixed-income securities.
- Expectations channel:
  - Difficult to measure due to lack of survey data and no regular BA communication on monetary policy decisions.

### Empirical strategy
- Methods:
  - Bivariate and trivariate VARs, building on 2014 SIP approach.
  - Trivariate VAR between exchange rate, net foreign assets (NFA), and inflation.
  - Granger causality tests using VARs with four lags.
  - Sample: quarterly data Q2 2002 to Q4 2024.
- Policy variables:
  - Liquidity management: required reserves (log-difference: ld_rreserv), net liquidity injections (percentage change: dl_netliquid), net liquidity management (percentage change: pc_RR_and_NetLiqAbs).
  - Interest rates: discount rate (change in: d_discrate), effective open market interest rate (change in: d_OMRcombo).
  - Exchange rate: nominal effective exchange rate (log-difference: ld_NEER).
- Intermediate channels:
  - Market interest rates: d_tbill3, d_tbill6, d_bond3y, d_bond10y, d_IBMrate24h, d_IBMLT.
  - Credit creation: ld_credec, ld_credpriv, ld_credCGALL.
- Final targets:
  - Inflation: ld_cpi_yoy.
  - Real non-hydrocarbon GDP growth: ld_PIBreeelHH.
- Additional analysis: recursive structural VAR with Cholesky ordering (two lags) and exogenous variables: change in Algerian government expenditure to GDP, change in brent oil price, change in fed funds rate, change in VIX, change in log-difference of EU GDP.
  - Choice of effective open market rate and net liquidity management as preferred instruments follows bivariate VAR results and 2014 SIP approach.
  - Chow tests around Taper Tantrum 2015 and COVID-19 do not indicate structural breaks.

### Empirical findings
- Intermediate transmission channels:
  - Liquidity management tools have a significant impact on credit to the government but no significant effect on credit to the economy or market interest rates.
    - A standard deviation increase in reserve requirements or liquidity absorptions reduces credit to the government between 2 and 4 percent.
  - Policy interest rates:
    - Discount rate has a significant but small effect on the 10-year government bond: a standard deviation positive shock to the discount rate increases the 10-year bond rate by 0.06 percent.
    - Effective open market rate is the most effective policy rate measured:
      - A standard deviation increase in the effective open market rate increases the 3-year rate by 0.1 per cent and the 10-year rate by 0.05 percent after 4 quarters.
    - No measurable effect of policy interest rates on credit to the economy was found.
- Final targets:
  - Bivariate VAR estimations find no significant relationship between monetary policy instruments and the final targets of inflation and real non-hydrocarbon growth.
  - Relationships are generally in the expected direction but not statistically significant in bivariate analysis.
  - Multivariate structural VAR with exogenous controls is needed to isolate effects given external shocks and interdependencies.

### Key quantitative points (preserved exactly)
- Timeframes and dates: 2000s; 2007 to 2015; 2015; 2016; 2017; 2021/22; Q2 2002 to Q4 2024.
- Shares and percentages: credit to government 53 percent in 2024; government swap equivalent to 11.3 percent of GDP in 2021/22.
- Inflation: peak of 10 percent (year over year) and containment to 3 percent by end of 2024.
- BA M2 implicit target: 8-10 percent M2 growth.
- MBL monetary financing limits: advances up to 240 days within one calendar year and within the limit of 10 percent of state revenues in the previous financial year.
- VAR effects:
  - Liquidity management → reduces credit to the government between 2 and 4 percent per standard deviation shock.
  - Discount rate shock → 10-year bond rate increases by 0.06 percent (standard deviation shock).
  - Effective open market rate shock → 3-year rate increases by 0.1 per cent and 10-year rate increases by 0.05 percent after 4 quarters.

*Prepared by Gian Plebani and William Gbohoui; analysis based solely on the provided IMF content unit.*

### 16.      We can find a significant effect of a shock to the nominal effective exchange rate on

### 16.      We can find a significant effect of a shock to the nominal effective exchange rate on 

### Multivariate Analysis Results
- A shock to the nominal effective exchange rate (NEER) has a significant effect on net foreign assets (NFA); an appreciation of the exchange rate would reduce NFA and liquidity in the system.
- A reduction of NFA can lead to lower inflation. While an appreciation of the exchange rate is associated with lower inflation, the effect is not s statistically significant (Figure 7).
- Estimations find that the Bank of Algeria’s (BA’s) liquidity management has the intended effect on inflation and the exchange rate while no measurable effect on real growth is found; effects of open market interest rates are insignificant.
- A standard deviation in net liquidity absorption (1.2 percent of GDP) leads to a reduction in inflation of 0.4 percent over the next 4 quarters (Figure 8).
- Net liquidity management has a marginal but significant effect on the exchange rate.
- An increase in the effective open market interest rate decreases inflation and real GDP (noted but described as mostly statistically insignificant).
- An increase in liquidity absorptions has a significant effect on inflation and the exchange rate but no effect on real GDP.
- An appreciation of the exchange rate tends to reduce inflation and real GDP.
- Overall conclusion: limited monetary policy transmission in Algeria; interest rate channel is weak with no significant impact on inflation and growth; liquidity operations have stronger evidence, affecting inflation and the exchange rate but not real growth. Results are robust to alternative specifications.

### Structural Impediments to Monetary Policy Transmission in Algeria
- Identified general impediments (from literature): limited financial sector depth, underdeveloped credit and capital markets, an uncompetitive financial sector, inflexible exchange rate regimes, public sector dominance, and excess liquidity conditions (Mishra and Montiel (2012)).
- Specific characteristics/impediments in Algeria:
  - Excess liquidity in the banking system reduces effectiveness of interest rate adjustments. Causes cited: high hydrocarbon export revenues, past fiscal injections, public sector financing through the central bank, limited demand for credit. Banks rarely need to borrow in the interbank market or from the central bank.
  - Underdeveloped financial markets limit transmission of policy rate changes. Reliance on bank financing, limited capital markets, low bank penetration, absence of instruments such as repos, Treasury bills, and commercial paper restricts BA’s ability to conduct effective open market operations and manage short-term liquidity.
  - Role of the interest rate channel is limited. It was established in 2017 with one rate adjustment since. Banks do not actively adjust lending and deposit rates in response to policy changes. The discount rate has been published since 2001 but with very few actual transactions. Corridor between deposit rate for excess reserves (currently at 0.5 percent) and marginal lending rate (currently at 5 percent) is too wide to establish an effective interest rate channel. Open market operations often executed below policy rates, resulting in an interbank rate consistently lower than the policy rate and real interest rates to be negative (Figure 4 panel 3).
  - Fiscal dominance can undermine central bank independence and weaken monetary policy transmission. Examples: 2017-18 central bank financing and the 2021 special financing program.

### Policy Implications and Recommendations
- A comprehensive reform agenda is needed across financial markets, liquidity operations and central bank tools, central bank independence and transparency, and capacity-building. The 2023 MBL provides a foundation; authorities are taking steps to modernize the monetary policy framework and enhance the role of interest rates.
- Managing excess liquidity and proactive absorptions at the policy interest rate:
  - BA should enhance liquidity forecasting capabilities and regularly absorb excess liquidity in the banking system.
  - Bilateral absorptions are useful due to asymmetric distribution of liquidity.
  - Open market operations and bilateral liquidity absorption should take place at the policy rate to direct lending conditions and market interest rates accordingly.
  - Reliance on central bank financing should be curtailed because it injects liquidity and undermines monetary control.
- Enhance market-based monetary instruments and create a narrow symmetric standing facility corridor:
  - The deposit rate (currently at 0.5 percent) and the marginal lending rate (currently 5 percent) should form a narrower +/- 2 percent symmetrical corridor around the policy rate (currently at 3 percent).
  - Higher remuneration of excess reserves through the deposit facility would be transmitted to the economy.
  - Implementation of the newly created ELA framework of the 2023 MBL will allow BA to address residual idiosyncratic liquidity stress.
  - A clear interest rate corridor would allow market rates to converge around the central policy rate and anchor short-term rates more effectively.
- Deepen and diversify financial markets:
  - Continue to deepen the interbank market to help distribute liquidity within the banking system.
  - Establish a benchmark yield curve through regular and transparent issuance of government bonds to provide reference rates across maturities.
  - Encourage private sector and consumer credit accompanied by well-defined prudential rules.
  - Curb the use of cash in the economy and progress on digital payment infrastructure.
- Strengthen BA’s independence, governance, and price stability mandate:
  - The 2023 MBL grants greater autonomy, a focused mandate on price stability, and improved governance structures.
  - Establish an independent monetary policy committee with transparent decision-making and published meeting minutes.
  - Regular communication of monetary policy decisions to build credibility and form expectations.
  - BA is expanding use of forecasting models and intends to start regular communication on monetary policy decisions.

### Appendix — Key Econometric Results (selected numeric findings preserved)
- Sample periods and specification details:
  - Granger causality and VAR analyses use samples ranging from 2002q2 thru 2024q4 and 2003q1/thru 2024q4 with Lags 4 in reported tables.
- Table highlights (preserve reported p-values and test statistics as presented):
  - Credit to the economy does not Granger Cause Discount rate: ObsChi-sqP = 8613.43     0.009
  - Discount rate does not Granger Cause Credit to the economy: 863.34       0.502
  - Credit to private sector does not Granger Cause Discount rate: 8614.64     0.001
  - Discount rate does not Granger Cause Credit to private sector: 8639.16     0.000
  - NEER does not Granger Cause NFA: 873.36       0.000
  - NFA does not Granger Cause NEER: 8723.83     0.499
  - Inflation does not Granger Cause NEER: 8711.25     0.024
  - NEER does not Granger Cause Inflation: 873.89       0.421
- Liquidity management on inflation and exchange rate:
  - A standard deviation in net liquidity absorption quantified as 1.2 percent of GDP reduces inflation by 0.4 percent over the next 4 quarters.
- Policy-rate corridor numeric proposal:
  - Deposit rate currently at 0.5 percent; marginal lending rate currently at 5 percent; policy rate currently at 3 percent.
  - Recommended narrower +/- 2 percent symmetric corridor around the policy rate.

*Source: IMF staff calculations and the IMF Selected Issues Paper content provided in the source document.*

### References

### sipea2025131 - References

### References list

- Lahreche A., Jewell A. and Tapsoba S.J.A. (2014): Enhancing the Effectiveness of Monetary Policy in Algeria. IMF eLibrary: Enhancing the Effectiveness of Monetary Policy in Algeria1 in: IMF Staff Country Reports Volume 2014 Issue 034 (2014)

- Bernanke, Ben S., and Gertler. M. (1995): “Inside the Black Box: The Credit Channel of Monetary Policy Transmission.” Journal of Economic Perspectives 9 (4): 27–48. https://doi.org/10.1257/jep.9.4.27.

- Mishra, P., and P. Montiel (2012), “How Effective Is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence”, IMF Working Paper 12/143 (Washington: International Monetary Fund)

- Mishkin, Frederic S. (1995): "Symposium on the Monetary Transmission Mechanism." Journal of Economic Perspectives 9 (4): 3–10.

- Ha, J. Kim, D. Ayhan Kose, M. and Prasada E. (2024). Resolving Puzzles of Monetary Policy Transmission in Emerging Markets. Global Economic Prospects. Policy Research Working Paper 10974 Washington, DC: World Bank.

- Saxegaard, M., (2006), “Excess Liquidity and Effectiveness of Monetary Policy: Evidence from Sub-Saharan Africa”, IMF Working Paper 06/115 (Washington: International Monetary Fund) IMF Working Paper

- Brandão-Marques L., Gelos G., Harjes T., Sahay R, Xue Y. (2020): Monetary Policy Transmission in Emerging Markets and Developing Economies, IMF Working Paper 035/2020 (Washington: International Monetary Fund) IMF Working Paper

*Source: sipea2025131 - References*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025131.pdf_