Abstract
Real effective exchange rate dynamics in Morocco: Exploring Balassa-Samuelson effect under capital account liberalization
Highlights
IntroductionAs in all developing countries, integration to international financial markets presents a risk relative to the real exchange rate appreciation under a fixed exchange rate regime
We refer to BalassaSamuelson effect to model the link between relative prices and relative productivities
To examine the Moroccan case, we model the real effective exchange rate as a result of relative productivity differentials between tradable goods sector and non-tradable goods sector
Summary
As in all developing countries, integration to international financial markets presents a risk relative to the real exchange rate appreciation under a fixed exchange rate regime. For this reason, liberalization requires an appropriate macroeconomic policy, institutional development and structural reforms in order to create a stable context (Pill & Pradhan, 1997). The real appreciation can be explained by the fact that an increase in capital inflows raises the demand for both tradable and non-tradable goods, and given that tradable prices are determined by the world markets, only non-tradable prices will raise This mechanism leads to resources’ transfer from non-tradable sector to tradable sector and to more real exchange appreciation through relative prices (Krumm, 1993)
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