Calixte Ahokpossi, Pilar Garcia Martinez, and Laurent Kemoe
INTERNATIONAL MONETARY FUND
We estimate the latent factors that underlie the dynamics of the sovereign bond yield curve in
Morocco during 2004-14 based on the Dynamic Nelson-Siegel model. On this basis, we
explore the interaction between macroeconomic variables and the yield curve, which is of
direct relevance to macroeconomic policy-making. In Morocco's context, we find that tighter
monetary policy increases short-end maturities, and that the impact is small and short-lived.
Economic activity is also briefly but significantly impacted, suggesting that even under a
pegged exchange rate, monetary policy autonomy and effectiveness can be increased through
greater central bank independence. Fiscal improvements significantly lower yield levels. Policy
conclusions are that improvement in the fiscal and monetary policy frameworks, as well as
greater financial sector development and inclusion, could benefit Morocco and strengthen the
transmission mechanisms and effectiveness of macroeconomic policies.