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

  • Ezzahid, Elhadj
  • Maouhoub, Brahim
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    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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    File URL: http://www.economics-ejournal.org/economics/discussionpapers/2014-18
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    File URL: http://econstor.eu/bitstream/10419/96210/1/783682212.pdf
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    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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    1. J. Ramos-Tallada., 2013. "The IMF and management of capital flows: the long road towards a pragmatic approach," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 31, pages 63-85, Autumn.
    2. 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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