Inflation Dynamics in Algeria: Evidence from a Time–Frequency Wavelet Analysis of Monetary, Fiscal, and Investment Factors (1970–2024)

This paper analyzes the dynamics of inflation in Algeria by examining its relationship with money supply, government expenditure, and capital formation over the period 1970–2024. The study adopts a time–frequency framework based on wavelet power spectrum and wavelet coherence analysis to capture the evolving and non-linear interactions between inflation and its key macroeconomic determinants across short-, medium-, and long-term horizons. The empirical results provide strong evidence in support of the monetary hypothesis, revealing persistent and statistically significant coherence between money supply growth and inflation, particularly at short- and medium-term frequencies, with monetary expansion generally leading price increases. Government expenditure also exhibits a positive and significant association with inflation during specific periods, reflecting demand-driven inflationary pressures, especially in the context of fiscal expansions linked to oil revenue windfalls. In contrast, the relationship between inflation and capital formation appears asymmetric, as inflation tends to lead investment at medium-term horizons, suggesting that price volatility discourages capital accumulation rather than stimulating productive capacity. Overall, the findings highlight inflation in Algeria as a time-varying and structurally driven phenomenon shaped by the interaction of monetary, fiscal, and investment dynamics. The wavelet-based approach offers policy-relevant insights by identifying the time horizons at which inflationary pressures are most pronounced.