Exchange volatility and trade performance in Morocco and Tunisia: what have we learned so far?

Abstract

This paper attempts to assess two interesting issues for two small open economies (Morocco and Tunisia). First, it analyses the historical behaviour of nominal exchange rate, differential price and real exchange rate uncertainties. Second, it investigates the stability of the interaction between exchange volatility and exports in nominal and real terms. Our main results reveal that the effect of differential price volatility on exports exceeds that of nominal exchange rate by a large margin in terms of duration of persistence, ARCH and GARCH effects and intensity of shock. The relationship appears complex. In Morocco, it is negative and significant in 75.82% (as average) of cases in nominal terms and in 77.22% in real terms. This link is stronger in Tunisia with averages, respectively, equal to 85.88% and 89.99%. We associate the apparently mixed results to the differential price uncertainty itself sensitive to ups and down oil price movements, switching regime and leverage effects.