Assessing Monetary Policy Shocks to Inflation: The Case of Morocco

Abstract

Monetary policy transmission channels play a crucial role in transmitting central bank decisions to macroeconomic magnitudes. Thus, the transmission mechanisms of a monetary policy conducted by a central bank can be grouped into four mechanisms, namely the interest rate channel, the credit channel, the exchange rate channel and the asset price channel. In addition, of these four monetary policy transmission channels, which can be measured, there are other channels which cannot be measured, namely the expectations channel and the risk-taking channel, etc

Assessing the effectiveness of monetary policy decisions taken by a central bank involves assessing the effectiveness of monetary policy transmission channels; since the latter constitute mechanisms through which the decisions of a central bank are transmitted towards its objectives (economic activity and/or inflation).

The objective of this article is to assess the long-term transmission channels of monetary policy in Morocco from the fourth quarter of 2007 to the first quarter of 2020 (50 observations). Thus, to measure the effects of monetary policy transmission mechanisms on inflation, a structural VAR model was used. The results obtained show the importance of the exchange rate channel, the weakness of the interest rate channel and bank credit, while the asset price channel is dysfunctional.

Keywords : monetary policy, channels of transmission, structural VAR.

JEL Classification :  C32, C51, E52, E58

Paper type : Empirical research.