Effectiveness Of Monetary Policy In Morocco:Towards Adopting An Effective Strategy Targeting Inflation

The present research studies the degree of readiness of the Moroccan economy to adopt a monetary policy targeting inflation.It is a question of assessing the institutional,technical and economic prerequisites as well as the effectiveness of the transmission mechanisms of this monetary policy.It sorts out Morocco's economic and financial development and the evolution of its monetary policy,and analyzes the applicability of the inflation targeting monetary policy in Morocco.To address this issue,we have made a basic assumption that Morocco is not ready to adopt such effective strategy in the short term.The study carried out consists in first evaluating the institutional,economic and technical framework required for this type of monetary policy,before moving on to examining the transmission mechanisms of monetary policy.This last point is subject to VAR(vector autoregressive)modeling in order to test possible responses following a monetary policy shock.So,we aim to verify if the conditions necessary for the success of the adoption of such strategy in Morocco,are indeed fulfilled.We have set the following four objectives for this research:Firstly,is to position the framework concept of the strategy of inflation targeting as an innovative practice of monetary policy.Secondly focuses on the analysis of the evolution of the practices of monetary policy in Morocco.Thirdly we sum up all of the pre-requisites for the implementation of the inflation targeting strategy in Morocco.And fourthly,we are targeting the evaluation of the effectiveness of the channels of transmission of monetary policy in Morocco.It is generally accepted in the economic literature that monetary policy has a real short-term effect and a long-term impact on prices.These effects are exerted via transmission mechanisms which can be defined as the process by which monetary decisions are transmitted to income and inflation.Understanding these mechanisms is crucial for the effective conduct of monetary policy.The channels that are often studied in the empirical literature,namely the interest rate,bank credit,consumer prices and the exchange rate.Given their close dependence on economic and financial structures,these channels differ from one country to another.Unlike developed countries,developing and emerging countries are subject to the monetary policies of the main central banks at the world level,in particular those of the European Central Bank and the American Federal Reserve.Therefore,the modeling of monetary policy in these countries should be different from that of developed countries.As a result,neglecting such a characteristic could bias the results of the estimations and give rise to empirical paradoxes.the conduct of monetary policy is further constrained by the level of credit private sector and by the interest rate of the countries.The results obtained at the end of this work,allowed us to note an improvement with regard to the independence of the central bank in the legal and real dimension.With regard to the information and technical system of the Moroccan monetary authorities,we have noted remarkable progress,thus providing economic agents with sufficient data on decisions taken in the area of monetary policy.However,at the macroeconomic level,the results have shown some limits.These are the weaknesses characterizing the depth of the Moroccan financial system,in its two components:banking and financial,as well as the inadequacies that prevent transiting towards the flexibility of the exchange rate regime.In addition to the above,the empirical evaluation of the transmission mechanisms of monetary policy has highlighted the limits characterizing the dynamic interaction relationships between the different variables adopted following a shock in monetary policy.The ongoing modernization of the Moroccan economy and its financial system,the country's orientation towards opening up to the outside world,as well as the evolution of the practices of its central bank(Bank Al-Maghrib,BAM)justify the deepening of reflections on the transmission of monetary policy.These investigations explore the channels of dissemination of BAM actions to the monetary,financial and real sectors of the Moroccan economy.It is within this framework that this thesis adopts an empirical vocation,covering the period going from the major structural economic reforms of the years 1990 to 2013.Thus,the econometric methodology"VAR" was applied in order to study the dynamics of the reactions of variables of the economy to different shocks.In order to achieve the objective of this work,we have gone through different empirical steps aimed at exploring the routing of monetary policy action to its target variables,studying the structure of transmission channels and 1 assessment of the effects of factors beyond the central bank's control on the transmission of its monetary policy.Our estimates show that the transmission of monetary policy from BAM to the Moroccan economy is incomplete,even if it occurs within a reasonable timeframe.Also,the unstable structure of the transmission channels partly explains the attitude of the variables involved in this process.Our results also indicate that fiscal and external factors significantly disrupt the phases of propagation of monetary policy action,through the influence of the behavior of its target variables.In short,the main contribution of this thesis consists in showing that inflation targeting represents an opportunity to be seized by the Moroccan monetary authorities,but the imperfections that have been pointed out in this work must be remedied beforehand while consolidating the gains.