Black and official exchange rates in Morocco: an analysis of their long-run behaviour and short-run dynamics (1974–1992)

Abstract

Using Vector Error-Correction (VEC) model estimation on monthly data from Morocco for the period January 1974 to December 1992, this article tests the hypothesis that there is a long-run stable relationship between the official and the black-market exchange rates for US dollars. We also examine the short-run dynamics in the relationship between the two markets. The econometric results indicate that the two exchange rates are cointegrated. Furthermore, we reject weak exogeneity in the case of the official exchange rate, but fail to reject it in the case of the black-market rate. Granger causality tests show that the black-market rate causes the official exchange rate. The results seem to support the efficiency hypothesis, suggesting that participants in the black-market are able to anticipate changes in the official exchange rate. The findings also suggest that Morocco's decision (in January 1993) to introduce only current account convertibility and keep controls on capital accounts was wise.

Acknowledgements

I would like to thank, without implications, Mohsen Fardmanesh for helpful comments on an earlier version of this article. I am also grateful to the International Centre for Economic Research in Turin, Italy, where a significant portion of my work on this article was completed.

Notes

¹ Jones and Roemer (1989), and Lindauer (1989) provide an interesting discussion of the characteristics of several nonofficial markets for exchange rates.

² Although the bureaucracy is sometimes overwhelming, nonresidents are allowed to convert and repatriate most of their earnings.

³ In November 1988, the Harvard Institute for International Development sponsored a workshop on parallel markets in developing economies. Some of the papers presented at the workshop were published in World Development, Vol. 17, 1989.

⁴ More recently, there have been a number of studies focusing on African economies. See for example, Odedokun (1996), Ashworth et al. (1999) and Gelbard and Nagayashu (1999). Agénor and Taylor (1993) used monthly data on official and black-market rates in Morocco (and other developing countries) for the period 1974 to 1986. However, the present study covers a longer period of time.

⁵ As a result of the substantial remittances by Moroccan nationals employed in France and trade relations with France–the main trading partner of Morocco.

⁶ Dornbusch et al. (1983) and Culbertson (1989) have pursued this avenue.