Abstract

This study is an attempt to estimate the behavioral equilibrium exchange rate in Morocco. Since the equilibrium value is unobservable, we use a set of fundamentals supposed to affect the exchange rate movements including the real net capital flows (NKF), terms of trade shocks (TOT), government fiscal stance (GOV), foreign reserve level (RES), index of monetary policy (MOP) and relative productivity (PROD) to get it. Using quarterly data from 1980Q1 to 2012Q4, the empirical analysis commences by checking the stationarity of the variables that turn out to be all stationary at first difference. Then, using the cointegration test and the Vector-Error Correction Model of the Moroccan Dirham exchange rate as function of the indicated macroeconomic fundamentals, the regression shows that the main fluctuations of the real effective exchange rate are due to trade openness, government spending, terms of trade, the productivity progress, monetary policy and net capital inflow. Accordingly, and using HP decomposition filter we figure out three periods of under/overvaluation ranging from 2.80% under to 2.16% over equilibrium level, furthermore, the misalignment from the equilibrium level needs from five to six years to be eliminated.

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