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Capital Account Liberalization in Morocco: Is it Compatible with Fixed or Flexible Exchange Rate Regime?

Author

Listed:
  • Elhadj Ezzahid

    (Mohammed V University, Rabat, Morocco)

  • Brahim Maouhoub

    (Mohammed V University, Rabat, Morocco)

Abstract

This paper examines the opportunity of exchange rate regime flexibilization in Morocco under the policy of capital account liberalization. Basing on our findings in Ezzahid and Maouhoub (2014), we develop a new theoretical game model with four economic agents, namely: monetary authorities, government, foreign firms and domestic firms. We explore the optimal exchange rate regime for Morocco under new conditions such as the presence of a compensation fund effect, restrictions on capital outflows, etc. Starting with a first simulation based on current economic parameters, the results show that losses under a flexible exchange rate regime are lower than losses under a fixed exchange rate regime. Varying different parameters allow discovering the ‘appropriate level’ from which monetary authorities should move toward the flexible exchange rate.

Suggested Citation

  • Elhadj Ezzahid & Brahim Maouhoub, 2020. "Capital Account Liberalization in Morocco: Is it Compatible with Fixed or Flexible Exchange Rate Regime?," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(1), pages 185-218.
    • Handle: RePEc:cbk:journl:v:9:y:2020:i:1:p:185-218
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol9no1-10.pdf
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    Cited by:

    1. Mahdi Yazdani & Mohammad Nikzad, 2021. "Output Losses from Currency Crises and the Role of Central Bank," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(3), pages 79-97.

    More about this item

    Keywords

    Capital account liberalization; Exchange rate regime flexibilization; compensation fund; Real exchange rate; and game theory.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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