The structural dependence of the Algerian economy on the hydrocarbons sector is of great concern, first because it represents the main foreign currency inflows to the economy; it also has been a source of pro-cyclicality to government spending and taxes policy.
The actual dual shock of the COVID-19 pandemic and the oil prices plunge makes it very important to conduct an analysis that assesses the direct and indirect effects of oil price fluctuations on the Algerian economic activity.
Using an SVAR model we analyze the dynamics of the GDP structure by subjecting its components to an exogenous shock. We use quarterly data covering the period 1999 to 2019 to evaluate the response of national account aggregates (from both the production and demand sides) to oil price shocks. We also explore the similarities in their fluctuations with the ones observed in oil prices and foreign reserves; we consider the later as a damper that can absorb foreign shocks. Our results show a strong and clear impact of international oil price fluctuations on GDP growth, hydrocarbon exports, and public spending.