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Capital account liberalization and exchange rate flexibility: Scenarios for the Moroccan case

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  • Ezzahid, Elhadj
  • Maouhoub, Brahim
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    Abstract

    This paper explores the links between gradual capital account liberalization and the exchange rate regime in Morocco where the process of economic and financial openness is relatively advanced. Using a game theory model with two economic agents, that are monetary authorities and domestic firms, we explore the best choice concerning the exchange rate regime for Morocco in a context characterised by increasing openness especially of capital account. The results show that welfare under a flexible exchange rate regime is higher compared to welfare under a fixed exchange rate regime. The analysis also shows that the flexible exchange rate will improve competitiveness. However, flexibility will undermine price stability. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2014-18.

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    Date of creation: 2014
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    Handle: RePEc:zbw:ifwedp:201418

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    Keywords: capital account liberalization; exchange rate regime; competitiveness; inflation; Morocco;

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    1. Michael B. Devereux & Charles Engel, 1999. "The Optimal Choice of Exchange-Rate Regime: Price-Setting Rules and Internationalized Production," NBER Working Papers 6992, National Bureau of Economic Research, Inc.
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