Exchange rate misalignment and trade fluctuations in Morocco: Empirical evidence

Abstract

This paper examines the relationship between the exchange rate and the return of foreign trade, by analyzing the impact of its misalignment on Morocco’s trade balance in comparison to its main partner (EU), during the period 1980–2021. After identifying the fundamentals retained, we estimated the error correction model in order to capture the long-term dynamics and deduce the periods of distortions of the dirham using the Behavioral equilibrium exchange rate approach. The results clearly show the periods of misalignment, and their absorption requires a long period and leads us to the problem of its persistence and its causes. The conclusion drawn confirms that even with a depreciation, the long-term effect of the exchange rate in stimulating economic growth through the exports channel does not have the expected effects of a positive impact on the volume of trade.

Keywords:

• Real exchange rate
• trade balance
• misalignment
• BEER approach
• cointegration

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 EU: European Union.

2 PPP: Purchasing power parity, BEER: Behavioral equilibrium exchange rate, FEER: Fundamental equilibrium exchange rate, DEER: Desired equilibrium exchange rate, NATREX: Natural real exchange rate.

3 GDP: Gross domestic product.

4 REER: Real effective exchange rate.

5 IMF: International monetary fund.

6 GMM: Gaussian mixture model.

7 ARDL: Auto regressive distributed lag.

8 SAP: Structural adjustment program (PAS).

9 The variables are expressed in natural logarithm.