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© 2021 International Monetary Fund
WP/21/249
IMF Working Paper
Middle East and Central Asia Department
Morocco’s Monetary Policy Transmission in the Wake of the COVID-19 Pandemic
Prepared by Maximilien Queyranne, Dániel Baksa, Vassili Bazinas, and Azhin Abdulkarim1
Authorized for distribution by Roberto Cardarelli
October 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
This paper finds that the neutral interest rate has been on a downward trajectory in Morocco since the global financial crisis and may have fallen in the wake of the pandemic. In that context, monetary policy transmission to output and prices appears relatively muted given limited exchange rate flexibility until recently. Also, monetary policy transmission to some market rates has somewhat weakened in the wake of the pandemic. A lower natural rate and low policy rates raise the question of whether further rate reductions would impair the banking system. We find that the sensitivity of cash demand to deposit rates is low, implying limited risks that banks would lose funding with further reductions. A reliance on checking and savings accounts for funding may impair monetary pass-through, however. If monetary policy reaches its effective lower bound, limited and credible recourse to an asset purchase program could usefully complement conventional measures and strengthen monetary policy transmission under an inflation-targeting regime with a flexible exchange rate.
JEL Classification Numbers: E4, E5
Keywords: Monetary policy, neutral interest rate, unconventional monetary policy.
Author’s E-Mail Address: mqueyranne@imf.org; vbazinas@imf.org; dbaksa2@imf.org
Contents
Abstract
Glossary
Introduction
I. Assessing Morocco’s Space for Conventional Monetary Policy
A. Estimating the Neutral Interest Rate in Morocco
B. Gauging Monetary Policy Transmission in Morocco
II. Modeling the Impact of an Asset Purchase Program in Morocco
III. Conclusions
Tables
Table 1. Taylor Rule Regression
Table 2. Effect of Monetary Policy tightening on Output and Prices
Table 3. Estimates of the Demand of Banknotes in Morocco
Figures
Figure 1. Results of the Trend-Cycle Decomposition and Small Semi-Structural Model
Figure 2. Impulse Responses of Output and Prices to A Monetary Policy Shock
Figure 3. Monetary Policy Transmission to the Government Yield Curve
Figure 4. Monetary Policy Transmission to Lending rates
Figure 5. Monetary Policy Transmission to Deposit Rates
Figure 6. Share of total bank liabilities
Figure 7. Interest Rate Margin on Retail Operations
Figure 8. Impact of a downside scenario (solid lines) and an Asset Purchase
Appendices
Appendix I. A Semi-Structural Model with Monetary and Fiscal Policy for Morocco.
Appendix II. Variables Definition and Sources
Glossary
| AE | Advanced Economy |
| APP | Asset Purchase Program |
| BAM | Bank al-Maghrib |
| BPS | Basis Points |
| CPI | Consumer Price Index |
| ECB | European Central Bank |
| ELB | Effective Lower Bound |
| EME | Emerging Market Economy |
| ER | Exchange Rate |
| GDP | Gross Domestic Product |
| GFC | Golbal Financial Crisis |
| IMF | International Monetary Fund |
| IT | Inflation Targeting |
| NEER | Nominal Effective Exchange Rate |
| QE | Quantitative Easing |
| R* | Real Neutral Interest Rate |
| SME | Small and Medium Size Enterprise |
| TLB | Technical Lower Bound |
| UIP | Uncovered Interest Rate Parity |