Assessing the Effects of Real Exchange Rate Depreciation on the Moroccan Economy: Evidence based on SVAR Approach with Sign Restrictions
Abstract
The purpose of this paper is to analyze the dynamic response of a small subset of variables to exchange rate shocks by using a new method based on a set of theory-consistent sign restrictions for the purpose of identifying shocks over time (1995Q1–2019Q1) in the Moroccan economy. It is important to note that the current account presents the so-called “J-curve” phenomenon. Additionally, Morocco entered into a period of deeper and longer recession and higher inflation following the dirham’s depreciation. Following a real depreciation, the output has little effect on improving the current account balance. Our results suggest that the monetary authorities reacted immediately to exchange rate shocks by raising their interest rates to prevent the economy from falling into deflation.
References
References
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[22] Lian, A., Gil Kim, and Xiaomei Ren. 2014. Is Devaluation Expansionary or Contractionary: Evidence Based on Vector Autoregression with Sign Restrictions. Journal of Asian Economics, 34: 27–41. DOI:https://doi.org/10.1016/j.asieco.2014.03.003
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[25] Mohsin S. K. and Choudhri, E. U. 2004. Real Exchange Rates In Developing Countries: Are Balassa-Samuelson Effects Present? IMF Working Papers, 2004(188). Available at: https://www.elibrary.imf.org/view/journals/001/2004/188/001.2004.issue-188-en.xml
[26] Mountford, A., and Uhlig, H. 2009. What Are the Effects of Fiscal Policy Shocks? Journal of Applied Econometrics, 24(6): 960–92. DOI: https://doi.org/10.1002/jae.1079
[27] Mundell, R. A. 1963. Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates. The Canadian Journal of Economics and Political Science / Revue Canadienne d’Economique et de Science Politique 29(4): 475–85. DOI: https://doi.org/10.2307/139336
[28] Peersman, G. 2005. What Caused the Early Millennium Slowdown? Evidence Based on Vector Autoregressions. Journal of Applied Econometrics, 20(2): 185-207. DOI: https://doi.org/10.1002/jae.832
[29] Rafiq, M. S., and Mallick, S. K. 2008. The Effect of Monetary Policy on Output in EMU3: A Sign Restriction Approach. Journal of Macroeconomics 30(4): 1756–91. DOI: https://doi.org/10.1016/j.jmacro.2007.12.003
[30] Rudebusch, G. D. 1998. Do Measures of Monetary Policy in a Var Make Sense? International Economic Review 39(4): 907–31. DOI: https://doi.org/10.2307/2527344
[31] Shaghil, A. et al. 2002. Are Depreciations as Contractionary as Devaluations? A Comparison of Selected Emerging and Industrial Economies. SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, September 1, 2002. DOI: https://doi.org/10.2139/ssrn.333403
[32] Sims, C.A. 1988. Bayesian Skepticism on Unit Root Econometrics. Journal of Economic Dynamics and Control, 12(2): 463–74. DOI: https://doi.org/10.1016/0165-1889(88)90050-4
[33] Svensson, Torsten. 2000. Reviews. Economic and Industrial Democracy 21(2): 269–71. DOI:https://doi.org/10.1177/0143831X00212009
[34] Turner, P., and Van ’t Dack, J. 1993. Measuring International Price and Cost Competitiveness. BIS Economic Papers, 39. DOI: https://www.bis.org/publ/econ39.htm
[35] Uhlig, H. 2005. What Are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics, 52(2): 381–419. DOI:https://doi.org/10.1016/j.jmoneco.2004.05.007
[1] Armington, P. S. 1969. A Theory of Demand for Products Distinguished by Place of Production (Une Théorie de La Demande de Produits Différenciés d’après Leur Origine) (Una Teoría de La Demanda de Productos Distinguiéndolos Según El Lugar de Producción). Staff Papers (International Monetary Fund), 16(1): 159–78. DOI: https://doi.org/10.2307/3866403
[2] Bahmani-Oskooee, Mohsen, and Abera Gelan. 2013. Are Devaluations Contractionary in Africa?” Global Economic Review, 42(1): 1–14. DOI: https://doi.org/10.1080/1226508X.2013.769798
[3] Bahmani-Oskooee, Mohsen, and Artatrana Ratha. 2004. The J-Curve: A Literature Review. Applied Economics, 36(13): 1377–98. DOI: https://doi.org/10.1080/0003684042000201794
[4] Bahmani-Oskooee, Mohsen, and Kandil, M. 2009. Are Devaluations Contractionary in MENA Countries? Applied Economics, 41(2): 139–50. DOI: https://doi.org/10.1080/00036840600994195
[5] Bjørnland, H.C., and Halvorsen, J. I. 2014. How Does Monetary Policy Respond to Exchange Rate Movements? New International Evidence*. Oxford Bulletin of Economics and Statistics, 76(2): 208–32. DOI: https://doi.org/10.1111/obes.12014
[6] Blanchard, O.J., and Quah, D. 1989. The Dynamic Effects of Aggregate Demand and Supply Disturbances. The American Economic Review, 79(4): 655–73. DOI: http://www.jstor.org/stable/1827924
[7] Boyer, R. S. 1978. Optimal Foreign Exchange Market Intervention. Journal of Political Economy, 86(6): 1045-1055. DOI: https://www.journals.uchicago.edu/doi/abs/10.1086/260727
[8] Canova, F., and Pires Pina, J. 2000. Monetary Policy Misspecification in VAR Models. SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, August 9, 2000. DOI:https://doi.org/10.2139/ssrn.224529
[9] Cooper, R.N. 1969. Currency Devaluation in Developing Countries: A Cross- Sectional Assessment. Discussion Papers, July 1, 1969. Available at: https://elischolar.library.yale.edu/egcenter-discussion-paper-series/80
[10] Díaz, A.C.F. 1963. A Note on the Impact of Devaluation and the Redistributive Effect. Journal of Political Economy, 71(6): 577–80. DOI: http://www.jstor.org/stable/1828441
[11] Faust, J., and Leeper, E. M. 1997. When Do Long-Run Identifying Restrictions Give Reliable Results? Journal of Business & Economic Statistics, 15(3): 345–53. DOI: https://doi.org/10.2307/1392338
[12] Frankel, J. A. 2005. Mundell-Fleming Lecture: Contractionary Currency Crashes in Developing Countries in: IMF Staff .Papers Volume 2005 Issue 002. Available at: https://www.elibrary.imf.org/view/journals/024/2005/002/article-A001-en.xml
[13] Fry, R., and Pagan, A. 2011. Sign Restrictions in Structural Vector Autoregressions: A Critical Review. Journal of Economic Literature, 49(4): 938–60. DOI: http://www.jstor.org/stable/23071662
[14] Granville, B., and Mallick, S. 2010. Monetary Policy in Russia: Identifying Exchange Rate Shocks. Economic Modelling, 27(1): 432–44. DOI: https://doi.org/10.1016/j.econmod.2009.10.010
[15] Gylfason, T., and Schmid, M. 1983. Does Devaluation Cause Stagflation? The Canadian Journal of Economics / Revue Canadienne d’Economique, 16(4): 641–54. DOI: https://doi.org/10.2307/135045
[16] Kamin, S. B., and Rogers, J. H. 2000. Output and the Real Exchange Rate in Developing Countries: An Application to Mexico. Journal of Development Economics, 61(1): 85–109. Available at: https://econpapers.repec.org/article/eeedeveco/v_3a61_3ay_3a2000_3ai_3a1_3ap_3a85-109.htm
[17] Kandil, M. 2015. The Adverse Effects of Real Exchange Rate Variability in Latin America and the Caribbean. Journal of Applied Economics, 18(1): 99–120. DOI: https://doi.org/10.1016/S1514-0326(15)30005-2
[18] Karahan, Ö. 2020. Influence of Exchange Rate on the Economic Growth in the Turkish Economy. Financial Assets and Investing, 11(1): 21–34. DOI: https://doi.org/10.5817/FAI2020-1-2
[19] Kim, Y., and Yung Hsiang Ying. 2007. An Empirical Assessment of Currency Devaluation in East Asian Countries. Journal of International Money and Finance, 26(2): 265–83. DOI:https://doi.org/10.1016/j.jimonfin.2006.11.004
[20] Krugman, P., and Taylor, L. 1978. Contractionary Effects of Devaluation. Journal of International Economics, 8(3): 445–56. DOI: https://doi.org/10.1016/0022-1996(78)90007-7
[21] Krugman, P.R, Obstfeld, M. and Melitz, M.J. 2018. International Economics: Theory & Policy, 2018. Available at: https://www.pearson.com/us/higher-education/program/Krugman-International-Economics-Theory-and-Policy-RENTAL-EDITION-11th-Edition/PGM1838559.html
[22] Lian, A., Gil Kim, and Xiaomei Ren. 2014. Is Devaluation Expansionary or Contractionary: Evidence Based on Vector Autoregression with Sign Restrictions. Journal of Asian Economics, 34: 27–41. DOI:https://doi.org/10.1016/j.asieco.2014.03.003
[23] Lizondo, J. S., and Montiel, P. J. 1989. Contractionary Devaluation in Developing Countries: An Analytical Overview. Staff Papers (International Monetary Fund), 36(1): 182–227. DOI:https://doi.org/10.2307/3867174
[24] Mejía-Reyes, P., Osborn, D. R. and Sensier, M. 2010. Modelling Real Exchange Rate Effects on Output Performance in Latin America. Applied Economics, 42(19): 2491–2503. DOI:https://doi.org/10.1080/00036840701858117
[25] Mohsin S. K. and Choudhri, E. U. 2004. Real Exchange Rates In Developing Countries: Are Balassa-Samuelson Effects Present? IMF Working Papers, 2004(188). Available at: https://www.elibrary.imf.org/view/journals/001/2004/188/001.2004.issue-188-en.xml
[26] Mountford, A., and Uhlig, H. 2009. What Are the Effects of Fiscal Policy Shocks? Journal of Applied Econometrics, 24(6): 960–92. DOI: https://doi.org/10.1002/jae.1079
[27] Mundell, R. A. 1963. Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates. The Canadian Journal of Economics and Political Science / Revue Canadienne d’Economique et de Science Politique 29(4): 475–85. DOI: https://doi.org/10.2307/139336
[28] Peersman, G. 2005. What Caused the Early Millennium Slowdown? Evidence Based on Vector Autoregressions. Journal of Applied Econometrics, 20(2): 185-207. DOI: https://doi.org/10.1002/jae.832
[29] Rafiq, M. S., and Mallick, S. K. 2008. The Effect of Monetary Policy on Output in EMU3: A Sign Restriction Approach. Journal of Macroeconomics 30(4): 1756–91. DOI: https://doi.org/10.1016/j.jmacro.2007.12.003
[30] Rudebusch, G. D. 1998. Do Measures of Monetary Policy in a Var Make Sense? International Economic Review 39(4): 907–31. DOI: https://doi.org/10.2307/2527344
[31] Shaghil, A. et al. 2002. Are Depreciations as Contractionary as Devaluations? A Comparison of Selected Emerging and Industrial Economies. SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, September 1, 2002. DOI: https://doi.org/10.2139/ssrn.333403
[32] Sims, C.A. 1988. Bayesian Skepticism on Unit Root Econometrics. Journal of Economic Dynamics and Control, 12(2): 463–74. DOI: https://doi.org/10.1016/0165-1889(88)90050-4
[33] Svensson, Torsten. 2000. Reviews. Economic and Industrial Democracy 21(2): 269–71. DOI:https://doi.org/10.1177/0143831X00212009
[34] Turner, P., and Van ’t Dack, J. 1993. Measuring International Price and Cost Competitiveness. BIS Economic Papers, 39. DOI: https://www.bis.org/publ/econ39.htm
[35] Uhlig, H. 2005. What Are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics, 52(2): 381–419. DOI:https://doi.org/10.1016/j.jmoneco.2004.05.007
Published
2021-12-31
How to Cite
AZZOUZI, Asmae; BOUSSELHAMI, Ahmed.
Assessing the Effects of Real Exchange Rate Depreciation on the Moroccan Economy: Evidence based on SVAR Approach with Sign Restrictions.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 12, n. 2, p. 116 - 130, dec. 2021.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/6725>. Date accessed: 12 july 2025.
doi: https://doi.org/10.14505/tpref.v12.2(24).05.
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