Does exchange rate flexibility affect Morocco's economic performance: an ARDL approach

Abstract

In a dynamic economy, researchers have long been interested in exchange rates and exchange rate regimes. Debates about their effects, notably on economic growth, have been generated by the transmission of exchange rate fluctuations to macroeconomic performance. The discussion over the type of exchange rate (optimal) that can best encourage economic growth is one of the most significant unsolved topics in the world of international finance. Regarding how the exchange rate affects economic growth, there hasn't been any agreement.

In fact, does switching from one system of exchange rates to another have an impact on economic growth?

This study aims to capture the influence of exchange rate volatility on economic growth in Morocco in order to evaluate the direction and degree of the impact of a regime on exchange rates. Using a co-integration method through an ARDL model, on quarterly data, covering the time range of Q1 2007 to Q4 2021.

The findings demonstrate the existence of a long-term relationship between exchange rate fluctuations and economic development as well as the existence of an error correction mechanism that modifies growth in times of temporary instability.