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Explicative determinants of real exchange rate volatility in Morocco: An econometric approach

Author

Listed:
  • Issam BOUSALAM

    (Université Mohammed Premier, Oujda, Morocco)

  • Ahmed KHATTAB

    (Abdelmalek Essaadi University, Tangier, Morocco)

  • Yahya SALMI

    (Abdelmalek Essaadi University, Tangier, Morocco)

Abstract

This paper aims to present a theoretical framework regarding the determinants of Moroccan Real Effective Exchange Rate (REER) volatility and to define the influential factors affecting it for the Moroccan economy between 1980 and 2020. This objective is primarily motivated by the recent changes adopted by Moroccan authorities towards a flexible exchange rate regime, which includes a progressive widening of the fluctuation range of the exchange rate. In this study, we used a GARCH(1,1) model and applied an Error Correction Model (ECM) with an estimation of the Autoregressive Distributed Lag (ARDL) approach. We found strong evidence that, in the long run, foreign direct investments, commercial openness, and terms of trade have a statistically significant negative impact on the volatility of the Moroccan REER, while the latter has a positive influence. Additionally, external debt, public expenditure, and the applied exchange rate regime positively affect REER volatility; in other words, they contribute to increased volatility in the foreign exchange market and the Moroccan economy. Conversely, the money supply has a negative impact, and the inflation rate has a positive effect on the studied volatility; however, these last results are not statistically significant.

Suggested Citation

  • Issam BOUSALAM & Ahmed KHATTAB & Yahya SALMI, 2024. "Explicative determinants of real exchange rate volatility in Morocco: An econometric approach," Turkish Economic Review, EconSciences Journals, vol. 11(3-4), pages 88-101, November.
    • Handle: RePEc:cvv:journ2:v:11:y:2024:i:3-4:p:88-101
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    References listed on IDEAS

    as
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    3. Omar Bakkou, 2015. "Flexibility of the Exchange Rate Regime and Exchange Regulation in Morocco," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(4), pages 1-10.
    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    5. Morana, Claudio, 2009. "On the macroeconomic causes of exchange rate volatility," International Journal of Forecasting, Elsevier, vol. 25(2), pages 328-350.
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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