Policy Uncertainty and Macroeconomic Dynamics : A New Index for Morocco

In the absence of a dedicated Economic Policy Uncertainty (EPU) index for Morocco, we construct a novel measure using natural language processing techniques applied to seven major Moroccan newspapers. The resulting index captures fluctuations in uncertainty related to the political context, economic downturns, and extreme climate events. Employing Structural Vector AutoRegression (SVAR) models, we assess the impact of both world and domestic uncertainty shocks on Morocco’s macroeconomic dynamics. Our findings show that the EPU index is countercyclical and significantly influences the economy through several transmission channels. In particular, heightened uncertainty worsens business cycle indicators, amplifies household pessimism, and promotes cash hoarding over bank savings. This research enriches the existing literature by uncovering the distinctive features of policy uncertainty in a small open emerging economy and underscores its implications for economic policy decisionmaking and public policy evaluation.