Sustainability of basket peg choices in the post-COVID-19 era: new evidence from Morocco & Tunisia

ABSTRACT

This article aims to study the impact of peg structure on volatility behaviour and crisis vulnerability, considering the COVID-19 economic context. We adopt a comparative analysis of volatility behaviour using GARCH family models and the ICSS Algorithm for the cases of Morocco and Tunisia. Our main finding is that peg characteristics aren’t the unique parameters impacting volatility behaviour and the exposition to the crisis. Furthermore, we detect different variations in volatility parameters as a result of the contrasting economic contexts and COVID-19 economic fallouts. Finally, we present some interesting policy implications, and we suggest some leads for future research.

KEYWORDS:

• Exchange rate
• COVID-19
• conditional volatility
• economic crisis

JEL CLASSIFICATION:

• F31
• G21
• C22

Acknowledgments

We would like to thank the editor and two anonymous referees for their valuable comments that helped us improve our paper.

Disclosure statement

We declare that we have no conflict of interest.

Notes

1. The formula used to determine 0fficial peg USD/MAD rate was communicated published by the Central Bank in its annual report of 2006:

$1\mathbf{M}\mathbf{A}\mathbf{D}=\frac{\mathrm{\%}\mathrm{U}\mathrm{S}{\mathrm{D}}_{\mathrm{P}}}{\mathrm{U}\mathrm{S}\mathrm{D}\mathrm{M}\mathrm{A}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}}+\frac{\mathrm{\%}\mathrm{E}\mathrm{U}{\mathrm{R}}_{\mathrm{P}}}{\mathrm{E}\mathrm{U}\mathrm{R}\mathrm{M}\mathrm{A}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}}\times \mathrm{E}\mathrm{U}\mathrm{R}\mathrm{U}\mathrm{S}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}\mathbf{U}\mathbf{S}\mathbf{D}$

The formula used to determine 0fficial peg USD/MAD rate was communicated published by the Central Bank in its annual report of 2006:

$1\mathbf{M}\mathbf{A}\mathbf{D}=\frac{\mathrm{\%}\mathrm{U}\mathrm{S}{\mathrm{D}}_{\mathrm{P}}}{\mathrm{U}\mathrm{S}\mathrm{D}\mathrm{M}\mathrm{A}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}}+\frac{\mathrm{\%}\mathrm{E}\mathrm{U}{\mathrm{R}}_{\mathrm{P}}}{\mathrm{E}\mathrm{U}\mathrm{R}\mathrm{M}\mathrm{A}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}}\times \mathrm{E}\mathrm{U}\mathrm{R}\mathrm{U}\mathrm{S}\mathrm{D}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{n}\mathrm{g}\mathrm{r}\mathrm{a}\mathrm{t}\mathrm{e}\mathbf{U}\mathbf{S}\mathbf{D}$

2. Profit & Loss

Additional information

Notes on contributors

Hamza Bouhali

Mr Hamza Bouhali is a FOREX Corporate Trader in an investment bank based in Morocco. He holds an Applied Mathematics’ Engineering degree from Mohammadia School of Engineering and currently finalizing his doctoral thesis in the fields of capital markets and econometrics in the same school.

Ahmed Dahbani

Mr Ahmed Dahbani is an HEC Paris graduate with more than 26-year experience as the Head of Trading room and senior FX Trader in Moroccan banks. He holds multiple certifications in behavioural economics, technical analysis, international trade, and Islamic banking.

Brahim Dinar

Pr. Brahim Dinar is a Professor at Hassan 1st university in Settat, Morocco, where he directs the research laboratory on economics and business management (LARGMA). He is a renowned expert in economics and monetary policy in Morocco with numerous participations in conferences and international events.