Relevance of a Taylor-type rule in the active monetary policy of Bank ...

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Relevance of a Taylor-type rule in the active monetary policy of Bank Al-Maghrib Nicolas Moumni * , Salma Dasser ** ** Abstract As the central banks of developed countries, the central bank of Morocco (Bank Al-Maghrib, BAM) has, since the 1990s, upgraded instruments and practices concerning its monetary policy. The purpose of this study is to examine the implementation by the institution of a Taylor-type rule in its active monetary policy via interest rates. For this, we conducted the estimation, by the generalized moments method (GMM) justified for its technical qualities, of backward-looking and forward-looking Taylor rule versions, simple and augmented by the monetary aggregate M1 (with and without smoothing), over the period 1995-2009. Our results do not support the use by the central bank of Morocco such a rule. The operational objective of Bank Al-Maghrib is to regulate liquidity in the money market, by influencing the overnight interbank interest rate. This rate is the main transmission channel of monetary policy. In this context, we favor the hypothesis of a discretionary monetary policy. JEL classification : E 52, E 58 Keywords: Taylor rule, monetary policy, Morocco. Introduction Like the central banks of developed countries, the central bank of Morocco (Bank Al-Maghrib), has since the decades 1980- 1990, modernized instruments of monetary policy, played an * Maître de Conférences (HDR), UPJV-CRIISEA, Faculty of Economics and Management, Amiens. **** Professor of Higher Education Assistant, University Mohammed V-Agdal, Faculty of Law, Economics and Social Sciences, Rabat. ~ 1 ~

Transcript of Relevance of a Taylor-type rule in the active monetary policy of Bank ...

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Relevance of a Taylor-type rule in the active monetary policy of Bank Al-Maghrib

Nicolas Moumni*, Salma Dasser****

Abstract

As the central banks of developed countries, the central bank of Morocco (Bank Al-Maghrib, BAM) has, since the 1990s, upgraded instruments and practices concerning its monetary policy. The purpose of this study is to examine the implementation by the institution of a Taylor-type rule in its active monetary policy via interest rates.

For this, we conducted the estimation, by the generalized moments method (GMM) justified for its technical qualities, of backward-looking and forward-looking Taylor rule versions, simple and augmented by the monetary aggregate M1 (with and without smoothing), over the period 1995-2009. Our results do not support the use by the central bank of Morocco such a rule.

The operational objective of Bank Al-Maghrib is to regulate liquidity in the money market, by influencing the overnight interbank interest rate. This rate is the main transmission channel of monetary policy. In this context, we favor the hypothesis of a discretionary monetary policy.

JEL classification : E 52, E 58Keywords: Taylor rule, monetary policy, Morocco.

Introduction

Like the central banks of developed countries, the central bank of Morocco (Bank Al-Maghrib), has since the decades 1980-1990, modernized instruments of monetary policy, played an important role in market reform and monetary and financial restructuring and concentration of the banking sector in Morocco, to greater competition.

Since the new framework, the central bank interventions have evolved from a control based on direct methods such as credit controls and automatic refinancing of banks by the rediscount to the indirect control interest rates in particular. Since its independence, gained in 2006, Bank Al-Maghrib (BAM), follows the standard international practices, of seeking to direct bank liquidity, mainly to ensure price stability.

*Maître de Conférences (HDR), UPJV-CRIISEA, Faculty of Economics and Management, Amiens.****Professor of Higher Education Assistant, University Mohammed V-Agdal, Faculty of Law, Economics and Social Sciences, Rabat.

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In this “small open economy” where about half the population is still rural and whose financing the economy is heavily dominated by the banking sector, the modernization of business practices was she accompanied by an introduction, by BAM, of Taylor-type rule in the active monetary policy via interest rates?

In theoretical terms, the challenge to the discretionary monetary policy by the Nobel Prize for Economics Kydland and Prescott, through their publication in 1977, because of time inconsistency that it entails, the literature highlights the effectiveness and credibility of monetary policy as justification for implementing monetary rule. But the emphasis has been put, for about three decades, on the interaction between monetary and financial sphere, because of the considerable development of financial markets this may lead to a conflict between price stability and financial stability.

After the failure of the Keynesian corpus in explaining global inflation of the 1970s, the new classical economics based on rational expectations (Muth), which focuses on imperfect information in order to explain the economic situation, has questioned the Phillips curve and concluded to the ineffectiveness of political, fiscal and monetary policy, discretionary cyclical macroeconomic stabilization.

Since the 1980s, new developments in macroeconomic policy maker recommends, in developed countries, submitting the policy mix in a “straitjacket” of rules for controlling inflation and public deficit. These fixed rules would guarantee the credibility of monetary authorities and of the state. Since 1998, Morocco is no exception to this almost universal practice, as the EU and the ECB, the objectives of public deficit to 3% of GDP and inflation around 2%.

The aim of this work is precisely to question the relevance of the construction of the reaction function of BAM through a Taylor-type rule in a country where the informal economy represents nearly 20% of GDP and the banking rate does not exceed 47% in big cities.

To this end we devote our first section to the monetary policy rule and the interaction between monetary sphere and financial sphere. We proceed in our second section to the analysis of monetary policy since its BAM modernization during the 1990s. In a third section, we question the determination of an active monetary policy in Taylor rule, using quarterly data over the period 1995-2009. Estimates of different versions of the Taylor rule will be implemented by the generalized moments method (GMM), which proves to be the most appropriate, given the statistical characteristics of the series used.

I- Rationale of the monetary policy rule

I-1 Rationale of the monetary policy rule: the importance of expectations

The debate on the active role of money in economy holds, since the 16th century, a crucial place in academic circles. In the sixties, the

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question of the impact of currency on the economy will rest with the work of Friedman and Schwartz (1963) on Real Business Cycle (RBC) that does not have a crucial role in monetary policy.

Moreover, following the failure of Keynesian in explaining global inflation of the 1970s, research in macroeconomics has led to two new trends: New Classical Economics (NEC), under the influence of Lucas, Sargent, Wallace and Barro and especially real business cycle theory (RBC), with the work of Kydland, Prescott, Long and Plosser. Both approaches retain the assumption of optimal operation of markets that are balanced by price. Then, the theory of disequilibrium, with Clower, Leijonhufvud and Grossman introduced the phenomena of sticky prices and wages to explain the imbalances in the markets (especially labor-market).

There is also the new classical economics based on rational expectations (Muth) which focuses on imperfect information to explain the economic situation, it has questioned the Phillips curve and concluded to the ineffective policies, fiscal and monetary discretionary cyclical macroeconomic stabilization.

As regards the theoretical foundations of monetary policy, the work initiated by Kydland and Prescott (1977), Barro and Gordon (1983) on the problem of time inconsistency, provide a rationale for rules, compared with discretionary policy, given the expected benefit of greater credibility for monetary policy.

Given the emphasis on price stability in the long run, the nominal anchor is now regarded as the obligatory passage of any effective monetary policy. This takes as reference a nominal anchor as the rate of inflation (or money) in order to secure the general level price. The mainstream literature puts forward the fact that this the anchor, first keeps expectations at a moderate level and secondly, an answers the problem of time inconsistency.

In the short term, monetary authorities may choose the ease of a more expansionary discretionary policy previously announced to a private sector (businesses and households) to boost the activity (and lower unemployment). Only the private sector will build on the continuity of policy and discretion will adjust its expectations by integrating higher prices in its calculations. So by this behavior, self-perpetuating, inflation expectations come true. Hence, the recommendation for the central bank to implement monetary policy rule and stick to it.

I-2 Enhancement of the interaction between monetary policy and financial sector

In the early 1980s, in a context of liberalization of capital movements and development of international financial markets, central banks of developed countries have gradually been adopting a monetary policy based on controlling the instrument of short term nominal interest rates.

For the past three decades, the financial liberalization in the world leads to greater market depth and a dramatic increase their liquidity. But the

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valuation of financial assets is done by transforming them into currency. After the phases of stock market euphoria, the cycle turns led to the financial crisis that creates a shortage of liquidity and often credit rationing.

Under these conditions, the central bank has no choice but to lower its interest rates to provide the liquidity needed to maintain the functioning of financial markets and monetary and credit support to the real economy, thus playing its role of LLR (Aglietta, 2010).

Indeed, the Fed’ keeping of interest rates very low, 1% from 2001 to 2004, combined with abundant savings in emerging countries, placed on the U.S. financial markets have been the source of excess global liquidity, uncontrolled by the U.S.A. These cash that was loaned by the U.S. investment banks to households in the form of variable rate mortgages, most of which a large part in the subprime segment, securitized subsequently caused a bubble in the sector. But the long rise in interest rates by the Fed between spring 2004 and spring 2007 from 1% to 5.25% reported unbearable financial burden of this category of borrowers forcing most of them for sale or seized by the lenders of their property. This increase rate has led to the bursting of the housing bubble and financial crisis starting in the summer of 2007.

We see how the "easy" credit may initiate a new market cycle by encouraging the purchase of financial assets that may be the origin of a new financial bubble. Hence the interaction loop monetary sphere/financial sphere, these cycles do not necessarily have the same regularity.

It should also be noted that central banks have as one of their objective, price stability, but also the functioning of the money market. Monetary policy should guide interest rates in order to ensure the preservation of purchasing power of money. Regarding the money market, the central bank's mission is to respond to pressures of capital markets to meet potential liquidity needs. Thus, a conflict may arise between, on the one side, a monetary policy, and on the other side, credit policies and interest rates.

I-3 Specification of the Taylor rule

In 1993, Taylor suggested in his empirical study on the American period 1987-1992 a relatively simple monetary rule that links the Federal Reserve nominal interest rate the two inflation targets and activity. The application of this rule by the central bank leads to lowering interest rates in a context of low economic activity and inflation, and the increase in cases of inflationary pressures and rising economic activity, facilitating return the economy to equilibrium.

This rule is written as follows : it=π t+r+0,5 (π t−π )+0,5 (Y t−Y ¿ ), were it is the nominal interest rate in the short term, r the equilibrium real interest rate, π t and π, respectively inflation and inflation target and (Y t−Y ¿ ) the output gap, defined as is the difference between the current level production and its potential medium-term.

The weights (0.5) granted to the inflation gap and output gap are equal, reflecting a concern for both goals by the mandate of the FED. These are

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precisely the coefficients (alpha and beta) that we consider in our empirical study.

But, the Taylor rule is purely empirical. It has no theoretical basis. Therefore, Svensson (2002) and other economists after him, seek to provide a theoretical framework. For these authors, the Taylor rule may establish, within defined macroeconomic models, a solution of optimal control of constrained minimization of a loss function of the central bank.

In its fight against inflation, the quest for credibility by the central bank on the announced level, justifies the adoption of an active monetary rule instead of discretionary monetary policy. It should be noted that active monetary rule depends on the specific country reaction function.

II- The monetary policy of Bank Al-Maghreb in an economy depends in its bank credit financing

II-1 Modernization of the monetary policy of BAM, the Treasury and the Casablanca stock exchange

Morocco's central bank was created in 1907, following the international conference at Algeciras in 1906, by representatives of 12 European countries, USA and Morocco. Its statutes were type-company, its headquarters were based in Tangier. His capital was shared between the signatory countries, excluding USA, was then majority owned by France.

At the international level, during almost three decades, the objective of price stability assigned to monetary policy, has become a virtual standard and implies a greater autonomy of central banks. Thus, like the major central banks around the world, Moroccan law n° 76-03 empowers the Bank Al-Maghrib on the conduct of monetary policy and endowed legal means to conduct surveillance and security systems and payment instruments (BAM site, Home, portal).

One major consequence of the revision of the statutes of the BAM is the abolition of financial assistance granted by that institution to the Treasury to finance the budget deficit.

Indeed, Article 6 of the new status of Bank Al-Maghrib, in operation since 2006, stipulates that: "the objective of monetary policy is to ensure price stability." This is a primary objective of monetary policy assigned to the modernized institution. What about international practices? The Fed mandate is "dual" because it gives equal priority to the fight against inflation as well as support to economic growth and employment. But the mandate of the BAM, as the ECB, is more "hierarchical", because its primary mission is price stability.

However, despite the modernization of monetary policy, the economy remains heavily dependent, for its financing, on the banking system. It has experienced significant movements of concentration and restructuring in the late 1990s. Since the Banking Act of 1993, BAM has played an active role in providing the necessary reforms to Morocco for a banking sector strengthened further. Such restructuring should allow for more efficiency in the financing of the national economy and also to cope with

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competition, particularly European, in view of its complete liberalization by 2012.

In 2006, the three largest banks held about 57% of the credit market; this share was only about 26% in 2004. Given the concentration movement known as the credit market in Morocco, it begs the question on its real scope for some borrowers (1).This restructuring has apparently not led to greater competition for customers, such as households and SMEs.

Also, to facilitate the financing of the Moroccan economy through alternative channels of bank loans, BAM has profoundly modernized Moroccan money market by opening private issuers and creating Securities Division (TCN). Now, private operators are on the money market, in addition to treasury bills, virtually all international standards instruments: certificates of deposit issued by banks, bills finance companies and commercial paper issued by not financial companies.

But money market modernization could not have been done without the Moroccan Treasury. Indeed, by 1989, the Treasury, like the current practices in OECD countries, introduced the technique of the award for his bills, ensuring competition between underwriters to finance government deficits by borrowing. The subscription of treasury bills has been extended gradually over time, to all investors. At the beginning, only banks were allowed to award. Gradually, the market was open to financial institutions, insurance companies, then to the public and private companies, since 1995, finally, individuals and non-residents.

It should be noted, moreover, that the Casablanca stock exchange which is the main channel of direct funding has lived during the 1990s, modernization. Since 1993, the Moroccan Stock Market has adopted various measures and reforms aimed at creating conditions for efficiency and transparency needed to promote direct financing of the national economy by raising capital.

However, despite the modernization of the Casablanca Stock Exchange since 1993, it is clear that the financing of the Moroccan economy remains heavily dependent on bank loans (bank-based). Loans of banking institutions are the main source of funding for our economy; they represent more than 80% of GDP.

As an illustration of this, in July 2008, loans of bank has been an annual increase of just over 25%. In this financing of the Moroccan economy, production and investment companies receive the highest proportion of bank loans. The dynamism of construction sector and public works and services is that they absorb the good part.

II-2 From monitoring of monetary aggregates to multi-criteria approach

In the modernizing of Moroccan banking and financial system, Bank Al-Maghrib has been known to evolve since the 1980s, the instruments of monetary policy. It was based, since independence, the direct control methods such as credit restrictions, which limited the rate of money creation, and the rediscount ceilings for banks to automatically refinance at fixed rates with Central Bank. Thus, by

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this mechanism, commercial banks provided the credit necessary to the functioning of the Moroccan economy.

Let’s note that, before its independence, the operational framework for monetary policy in BAM was to have as a reference monitor the progress of a monetary aggregate for which it set a standard for growth in a range determined at the beginning of each year.

This strategy is based theoretically on the assumption of stable money demand function. However, since the seminal work of Friedman (1959), Meltezr (1963) and Chow (1966), abundant empirical studies in developed countries and least in developing countries have most often led to rather contradictory results on stability of money demand function.

In the few studies conducted on the aggregates in Morocco (2), conclusions about the stability of the narrow aggregate M1 and the broad aggregate M3 is also a controversial author to another. In their majority, they explain this instability by the monetary and financial reforms undertaken by Morocco since the 1990s and by financial innovations that they have induced. The empirical study by H. Baddi (2010) on the function of money demand in Morocco between 1983 and 2007, on quarterly data, concluded that instability of the broad aggregate M3 and the stability of the narrow aggregate M1.

Because of this instability which seems to have concerned either as M3, or M1, the monetary authorities in Morocco have taken as an indicator M3 through until 1998 and then selected M1 from 1999 under its stability, and finally return to the M3 in 2006.

Since then, BAM has adopted a comprehensive strategy based on a multi-criteria approach. Now, the inflation risk is diagnosed through the following five elements: the evolution of aggregate demand pressures on production capacity, monetary conditions and asset prices, the import price and predicting the inflation (BAM site, home, portal).

While in the 1970s, the policy of quantitative monetary targets was used in a number of countries like Germany, France, Switzerland, United Kingdom, Canada, Japan and USA, since 2003, this strategy is hardly news. It is true that the ECB had his debut set at 4.5% growth rate of M3 as a reference value for monetary growth. But it was found during the 2000s, the actual growth rate of M3 was more than twice its reference value at times. It was 11-12% in autumn 2006, for example. However, the rate of inflation in the euro area has remained close to the target set by the Maastricht Treaty of 2%. This led, in May 2003 the ECB to establish a new monetary policy strategy that relies more on the two pillars, but on an "economic analysis" and "monetary analysis" or the reference value reference to the growth of M3 is no longer valid.

Without wishing to necessarily compare with the ECB, it nevertheless raises the question about the usefulness for BAM to continue to give a strategic role in the growth of the M3 monetary aggregate since 2006.

II-3 Operational framework for monetary policy: action on liquidity by influencing interbank rates

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In this modernization of tools and practices, monetary policy of BAM is to direct bank liquidity, mainly based on inflation targets and providing liquidity to the banking sector, the main supplier of credit to the economy. And this requires the handling of interest rates through accommodative or restrictive monetary policy. These rates are used to guide the development of inter-bank rates. It is by means of these rates that the transmission of monetary policy impulses is directed to the rest of the economy.

Now, at its regular meetings, the Council of BAM may have to change its rate depending on the country's economic situation and the international context of Morocco's main partners. The uncertainties and risk factors are often linked to oil prices, products and agricultural raw materials, volatility of inter-bank and foreign exchange rate. BAM raises rates (restrictive policy), if it fears a strong demand for credit could lead to an increase in money supply and aggregate demand generates a potential increase price. Conversely, if it wishes to encourage lending, it will lower interest rates (accommodation policy).

However, this analysis remains dependent on the assumption, shared by economists of the standard approach, that inflation was mainly a result of monetary implications (3) namely that in the long term, monetary policy determines the general level of prices goods and services. But it must be remembered, according to many empirical studies, that any monetary policy action acting on the economy after a period shorter or longer and that its scope is not always easy to assess. It is thus established, through the pursuit of the objective of price stability, monetary policy may be beneficial for economic growth in the long term.

Moreover, it is crucial for any central bank to identify the mechanisms and channels of transmission of monetary policy to all macroeconomic variables and behaviours of economic agents. These mechanisms and channels of transmission known in the case of economically advanced countries, they operate in the same way in the case of the Moroccan economy, which the structures and institutions are still outstanding "maturity"?

The objective of Bank Al-Maghrib is theoretically the same as other major central banks, i.e the decision to change interest rates is the first pulse of monetary policy to achieve, ultimately, the price level for whole economy.

II-4 Is there a real need to anchor inflation expectations in Morocco?

In fact, to act on liquidity (as part of its operational autonomy), BAM seeks, through the action on the corridor (4) of its interest rates, it has put in place following the ECB to steer interest rates money market (interbank). The latter must influence other interest rate market. In the case of an economy where financial markets are well developed (which is not the case of the Moroccan economy), the monetary policy decisions and announcements must normally anchore expectations of all economic agents including prospects for future interest rates.

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In countries with open and developed monetary and financial markets, expectations of economic agents pressures on the evolution of interest rates on long-term financial markets, given expectations of inflation. This does not fail to act on the cost of credit on wages and prices of goods and services, the prices of financial assets (and performance), as well as the exchange rate. This chain of transmission should exercise ultimately influence the behavior of arbitration between consumption and savings and hence on aggregate demand and employment. However, is this scheme operating in the case of the Moroccan economy? For this, the study and identification of mechanisms and channels of transmission of monetary policy in Morocco should be a prerequisite for the implementation of any strategy.

In practice, the regulation of money market liquidity is done through the intervention of BAM by means of various instruments and procedures appropriate to the degree of disequilibrium between supply and demand for credit to finance production and business investment and household consumption among others.

Interventions, to the discretion of BAM, can take different forms, such as advances and reversals of liquidity to 7 days a tender, open market operations using treasury bills, currency swap and repurchase agreements. The injection or withdrawal of liquidity may also occur through reverse repo (injection) or repurchase (withdrawal) on Treasury bills between BAM and the local banks, in proceedings of over-the-counter. Also in order to regulate bank liquidity, the Central Bank of Morocco has time to issue its own debt certificates and redeem them at the appropriate time.

However, was this modernization of the instruments and the strategy accompanied by an introduction, by BAM, of an active monetary policy by a Taylor-type rule?

III- Is there a Taylor-type rule in the case of BAM?Through this contribution, we attempt to analyze the compatibility

behavior of BAM in conducting monetary policy with the so-called Taylor. We turn then to that extent on the question of empirical adequacy of the monetary policy of the BAM to a Taylor-type rule: it=π t+r+0,5 (π t−π )+0,5 (eY t ) .We therefore undertake various versions. But first, we present the key figures of the Moroccan economy as follows:

Population : 31 992 592 with 44% of rural population in 2009 (Word Bank)GDP : 91 375 M$ in 2009 (Word Bank) Rate of bankarization: 47% with 6% in the rural zones in 2009 (Sia Conseil ) Bank credit: 80% of GDP in 2008 (Site BAM)

High commission of the Plan (HCP) 1999 2006 2009Growth rate of the GDP

Agricultural A.V. / except agricultural A.V.0,5%

-14,7%/3,9%

7,8%21,1%/5,1%

4,9%30,6%/

1%Informal sector/GDP 17% — —

Balance of the current operations with the outside/GDP

-0,4 +2,7 -5

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Inflation rate 0,72% 3,32% 1,03%Unemployment rate 13,8% 9,7% 9,1%

Table1.Key figures of the Moroccan economy (1999-2009)

III-1 Methodology and Data

III-1-1 Methodology

At first, we propose to estimate a basic reaction function of Taylor-type, without additional variables, quarterly data covering the period from 1995 to 2009.

We first estimate the static version backward looking inflation target and a target production.

With the aim of checking if the BAM sets its interest rate according to the previous rate, we introduce a smoothing term interest rate in Taylor's formula and an estimated dynamic backward-looking version. According to Sack and Wieland (2000), the smoothing of interest rates is justified when the impact of changing interest rates on the economy is uncertain.

We end this first series of estimates by the version Forward-Looking characterized by an expectation of inflation over n quarters (5).

In a second step, to test the effect of other variables on the response of the BAM, we propose to introduce the M1 in the Forward-Looking of the Taylor rule to see if the BAM takes account of M1's decision to change the policy rate. We propose estimating a reaction function of Taylor-type plus the additional variable, growth rate of M1, on quarterly data covering the period from 1999 to 2009.

III-1-2 Data and variables construction

In our study, the monthly index of consumer prices (CPI) and quarterly GDP is provided by the High Planning Commission (HCP). As for data on the rate and monetary aggregate M1, they are obtained from the website of the BAM.

At this point, two types of variables are involved in the Taylor formula, observable variables and other unobservable, including calculation methods differ from one study to another and whose influence on the results is not negligible. Observable variables are the rate of the BAM and the rate of inflation. For the rate decided by the BAM, was selected as the given quarter, their three-month average.

Regarding the current inflation rate, we selected as a quarterly rate of the CPI, the average monthly data on CPI provided by the HCP. Most studies that aim to study monetary policies led to a common measure of

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inflation as the rate of growth year on year the index of consumer prices whose equation for determining s' then writes:[ ( IPC t−IPCt−4 )/ IPC t−4 ].

The unobservable variables are neutral real interest rate, inflation target and the expected inflation rate, potential GDP and output gap. In the original model of Taylor, the neutral real interest rate is set at 2%. Setting this variable represents a practical difficulty and theoretical. There are two approaches to calculate this rate. Either, considering it as a constant value equal to the average difference between the nominal interest rate and inflation rate during the study period as adopted by Kozicki and Smets (1999). Or, referring to the neoclassical theory of growth, real interest rate equilibrium is considered equal to the potential growth of the economy, that is to say, sustainable growth without excessive inflation. In our study, we consider the first approach.

Regarding the inflation target, the extent of inflation targeting in most central banks only began in the 90s, empirical studies have generally chosen to target inflation is the last target known, the average rate of inflation over the period studied. The latter option is based on the assumption that central banks aim to stabilize inflation around its mean. To calculate the inflation target, then we keep the average inflation rate over the period studied. The expected inflation is approximated by a moving average of current inflation over 4 quarters.

Potential GDP is commonly defined in literature as possible without macroeconomic production accelerating inflation beyond its current level. The normal level of activity can be assessed using two approaches: the statistical approach and economic approach, (Cotis and Joly, 1997). The statistical approach is to extract the trend of a series of GDP while the economic approach tends to capture the maximum level of activity consistent with a stable rate of inflation.

In our study, we adopted the statistical approach using the method of Hodrick-Prescott filter with λ = 1600, since the data are quarterly (J.S. Mesonnier and J.P. Rennes, 2004). The output gap is defined as the relative change in real output relative to its potential trend.

III-1-3 Study of the stationary series

In the study of the stationary of this series, we used successively a graphical analysis of the series, the representation of correlograms and then ADF stationary tests to verify the existence or not of unit root. To strengthen the analysis, we also used the P.Perron test, which takes into account the trend breaks in the series. The results of the analysis of stationary of the series can reject the hypothesis of the presence of a unit root for all series. Thus, the series of interest rate and expected inflation rate is stationary, without constant or trend and the series production of the gap, current inflation rate and the rate of growth of M1 are stationary with a trend and a constant.

Before attempting to estimate equation (1) by the method of least squares (OLS) method commonly used when the series are stationary, it was necessary to verify the assumptions for using this method. The

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Hausman test applied to our explanatory variables found no exogenous variables of both output gap and inflation. The Durbin Watson test (6) is no longer valid to test the residual autocorrelation. We then apply the general test of Breusch-Godfrey confirming the presence of auto-correlation of residuals of order 1. OLS is biased and not consistent.

The alternative method used for the estimation of our equation is the generalized moments method, taking into account the endogeneity of regressors and autocorrelated errors. Viewed non exogeneity of the two variables output gap and inflation, we consider as instruments that delays of order higher than two of our explanatory variables.

Our criteria for validating the model are twofold. On the one hand, we must test the validity of the instruments using the Hansen tests to see if the instruments are orthogonal to the error terms or not, i e if there is a correlation between the instruments and the term error. The J-test statistic of Hansen is used in the presence of heteroskedasticity and autocorrelation of errors. On the other hand, we must verify economic significance of the estimated coefficients. It is expected that the coefficient of inflation is greater than unity, the output gap a positive sign for the principle of Taylor. And that the neutral interest rate estimated around that calculated, and a smoothing parameter not too close to unity.

III-2 Estimation of the basic version of the Taylor rule

III-2-1 Assessment of the version "Backward-Looking" static

Backward looking static version of the Taylor rule base is written:(1 ) it=r+π t+α . (π t−π )+β . (e Y t )

it which means the rate of the BAM at time t, π t the current inflation rate, r the neutral real interest rate, π inflation target, Y t  GDP, Y potential output. α and β are the respective weights of the inflation gap (π t−π ) and the output gap (eY t=(Y t−Y )/Y ).

For the practice of estimating equation (1), we are led to reformulate it as follows:

it=(r−α .π )+(1+α ) . (π t )+β . (eY t )After several estimates corresponding to different choices for

instruments, the results of the estimate used, according to the criteria mentioned above, are summarized in table 3 (appendix). Reading this table shows that all coefficients are significant and the value of the p-value of the j-statistics confirm the statistical validity of the instruments.

The estimated equation is then it=π t+0,02−2,76 (π t−π )+0.7 (eY t )The basic model of Taylor does not clearly reflected the conduct of

monetary policy of the BAM, the coefficient of the inflation gap (-2.76) is not consistent with the theory. In contrast, the estimated neutral real rate of 2% is pretty close to that calculated (equal to 2.4%) as the average difference between the nominal interest rate and inflation rate. Furthermore, the comparison between the estimated and observed that reveals a discrepancy between the two rates with a kind of oscillation rate

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estimated around the rate observed from the first quarter of 1996, as shown in graph 1 below :

-.12

-.08

-.04

.00

.04

.08

.12

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-basic version backward looking static-(1995T1-2009T4)

Graph 1.Series Comparison rates observed and estimated by the basic version backward static

One could then consider two alternative approaches to the behavior of the BAM. Change the Taylor rule base by introducing a smoothing of interest rates and anticipation of inflation or when estimating a reaction function taking into accounts other variables.

III-2-2 Estimating of dynamic «Backward-Looking» version

Backward looking version of the dynamic basic Taylor rule with a smoothing term interest rate is written:

(2 ) it=ρ . it−1+(1−ρ ) [r+π t+α . (π t−π )+β . (eY t ) ]where ρ denotes the coefficient of smoothing of interest rates (0≤ ρ<1).

For the practice of estimating this equation, we are led to reformulate it as follows:

it=(1−ρ ) (r−α .π )+ ρ. it−1+(1+α ) . (1−ρ )π t+ β . (1−ρ ) (e Y t )

Regarding the estimation of equation (2), we proceed as for equation (1) by the method of GMM. Reading the results in table 4 (appendix) allows us to conclude on the significance of all coefficients and the statistical validation of instruments. Smoothing parameter of the estimated rate being close to 1 (0.9) shows the inertia of monetary policy as shown in graph 2 below:

.03

.04

.05

.06

.07

.08

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-basic version backward looking dynamic-(1995T1-2009T4)

Graph 2.Series Comparison rates observed and estimated by the basic backward dynamic version

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Moreover, unlike the static model, the estimated neutral real rate is equal to 1.16% is much farther from that calculated (2.4%). From equation estimated below, the coefficient of the inflation gap (-0.86) is still not consistent with the Taylor rule. We then deduced that the introduction of interest rate smoothing improves almost no results:

it=0,9it−1+0,1 [π t+0,0116−0,86 (π t−π )+0,16 (eY t ) ]

In the following, we consider our model in anticipation of inflation over 4 periods.

III-2-3 Estimation of the "Forward-Looking" version with interest rate smoothing

Forward-Looking Version of the basic Taylor rule with a smoothing term interest rate and inflation expectations over n quarters is presented by equation (3):

(3 ) it=ρ .it−1+(1−ρ ) [r+π t+n/ t+α . (π t+ n/ t−π )+ β . (eY t ) ]where π t+ndenotes the expected inflation rate for time t+n at time t.

For the practice of estimating this equation, we reformulate it as follows:it=(1−ρ ) (r−α .π )+ ρ. it−1+(α+1) . (1−ρ )π t+ 4/ t+β . (1−ρ ) (eY t )

The results obtained (table 5 in appendix), all coefficients are significant, the instruments are statistically validated and the estimated neutral real rate (1.14) is almost equal to that estimated by the dynamic backward version (1. 16). The smoothing coefficient (0.92) is always as close to 1 than that estimated by dynamic backward version. Both rates of change observed and estimated pair from the graph 3 below:

.03

.04

.05

.06

.07

.08

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-based version forward looking dynamic-(1995T1-2009T4)

Graph 3.Series Comparison rates observed and estimated by the basic forward dynamic version

Taking into account the expected inflation only slightly improves the coefficient of the inflation gap (which went from -0.86 to -0.74) but remains negative while the output gap, always consistent with the Taylor rule, is smaller than that estimated by dynamic backward version: it=0,92.it−1+0,08 [π t+4 / t+0,0114−0,74. (π t+4 / t−π )+0,08. (eY t ) ]

The basic version of the Taylor rule does not then translates the response of the BAM. It would be desirable to increase it by introducing other variables. We suggest adding the monetary aggregate M1.

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III-3 Estimating the Taylor rule augmented by the monetary aggregate M1

III-3-1 Estimation of the static "Backward-Looking" version

Taking into account the monetary aggregate M1 in the static backward looking version of the Taylor rule, we get the equation:

(1 ' ) it=π t+r+α . (π t−π )+β . (e Y t )+γ . (eM t ), avec eM t=M t−M t−1

M t−1

For the practice of estimating equation (1), we are led to reformulate it as follows:

it=(r−α .π )+(1+α) . (π t )+β . (eY t )+γ . (e Mt )

The same tests as for the basic model lead us to use the MMG. The results of the estimate used, according to the criteria mentioned above, are summarized in table 3 (appendix). Reading this table shows that all coefficients are significant and the value of the p-value of the j-statistics confirm the statistical validity of the instruments.

The estimated equation is then:it=π t+0,0116−0,97 (π t−π )+0,04 (eY t )−0,04 (eM t )

The inclusion of M1 does not really improve the basic model of Taylor. The coefficient of the inflation gap, although it is higher compared to the basic static backward version, going from -2.76 to -0.97, is still not consistent with the theory (as negative). The coefficient of the output gap (0.04), again consistent with the Taylor rule, is much smaller than that estimated by the basic version (0.7). And the estimated neutral real rate, equal to 1.16%, is not as close to that calculated. Moreover, comparing the observed and estimated rates, we note that the rate of the augmented backward version is very close to observed rate since 2002, as shown in Figure 4 below:

.03

.04

.05

.06

.07

.08

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-augmented version backward looking static-(1995T1-2009T4)

Graph 4.Series Comparison rates observed and estimated by the augmented backward static version

III-3-2 Estimation of the dynamic "Backward-Looking" version

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Taking into account the monetary aggregate M1 in the dynamic "Backward-Looking" Taylor rule, we get the equation:

(2 ' ) it=ρ . it−1+(1−ρ ) [π t+r+α . (π t−π )+β . (e Y t )+γ . (eM t ) ]The practice of estimating this equation is as follows:

it=(1−ρ ) (r−α .π )+ ρ. it−1+(1+α ) . (1− ρ )π t+ β . (1−ρ ) (e Y t )+γ (1−ρ ) . (eM t )

Regarding the estimation of equation (2 '), we proceed by the GMM. The results in table 4 (appendix), we can conclude on the significance of coefficients and the statistical validation of instruments. Smoothing parameter of the estimated rate is always close to 1 (0.91) confirms a certain inertia in monetary policy. Comparing rates observed and estimated by the enhanced version is given in graph 5 below:

.03

.04

.05

.06

.07

.08

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-augmented version backward looking dynamic-(1995T1-2009T4)

Graph 5.Series Comparison rates observed and estimated by the augmented backward dynamic version

Moreover, the estimated neutral real rate, equal to 1.6%, is closer to the rate calculated as that estimated by the dynamic version of the database.

However, according to the equation estimated below, the coefficient of the inflation gap is still not consistent with the Taylor rule and that of M1.

it=0,91it−1+0,09 [π t+0,016−1,16 (π t−π )+0,25 (eY t )−0,27 (e M t ) ]

III-3-3 Estimation of the "Forward-Looking" version with interest rate smoothing

Taking into account the monetary aggregate M1 in the "Forward-Looking" of the Taylor rule with a smoothing term interest rate and inflation expectations in 4 quarters, we obtain the equation:

(3' ) it= ρ. it−1+(1− ρ )[π t+ 4t+r+α .(π t+ 4

t−π )+ β . (eY t )+γ . (eM t )]

The estimation of this equation takes the following form:it=(1−ρ ) (r−α π )+ρ it−1+ (1+α ) (1−ρ )π t+4 / t+β (1−ρ ) (eY t )+γ (1−ρ ) (eM t )

We will always use the GMM for estimating equation (3 '). The results are given in table 5 (appendix). Reading this table we can conclude on the significance of all coefficients and the statistical validation of instruments. Smoothing parameter of the estimated rate is always close to 1 (0.94) confirms a certain inertia in monetary policy. Comparison of observed and estimated rates by augmented forward version is given in graph 6 below:

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.03

.04

.05

.06

.07

.08

1996 1998 2000 2002 2004 2006 2008

interest rate of BAM (1995T1-2009T4)estimated rate-augmented version forward looking dynamic-(1995T1-2009T4)

Graph 6.Series Comparison rates observed and estimated by the augmented forward dynamic version

Moreover, the estimated neutral real rate is 1.4%. The estimated equation is written:

it=0,94 it−1+0,06 [π t+4 /t+0,014−0,8 (π t+4 /t−π )+0,14 (eY t )−0,012 (eM t ) ]

III-4 Summary of our results

In all our versions, all estimated coefficients are significant and over-identification tests of the instruments did not have dismissed the null hypothesis of correct specification of the model (7).We summarize in the table following the results of all our estimates:

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Basic version Augmented version by M1Static

Backward

Dynamic Backwar

d

Dynamic

Forward

Static Backwar

d

Dynamic Backwar

d

Dynamic

ForwardInflation

gap -2,76 -0,86 -0,74 -0,97 -1,16 -0,8

Output gap +0,7 +0,16 +0,08 +0,04 +0,25 +0,14Growth rate

of M1 — — — -0,04 -0,27 -0,01Equilibrium

real rate 2% 1,16% 1,14% 1,16% 1,6% 1,4%Parameter

of smoothing

— 0,9 0,92 — 0,91 0,94

Number of instruments 10 23 27 28 33 27

Table 2.Summary of the results of the estimations (1995-2009)

The estimate of six versions made by the static and dynamic (with smoothing) backward-looking and forward-looking, with and without addition of the monetary variable M1 (augmented version) over the period 1995-2009 does not allow us to confirm implementation by, BAM, an active monetary policy via a Taylor-type rule.

According to our calculations, the estimates coefficients (alpha) assigned to the inflation gap are not expected sign. They are all negative. However, according to the empirical literature, we should expect positive coefficients, thus confirming the link between inflation (anticipated or current) and changes in interest rates. Both say that the values of the coefficients (beta) on the output gap are all positive, as suggested by Taylor and from the empirical literature.

In contrast, in the dynamic versions, the smoothing coefficient (rho) is consistent with the view that observed in the empirical literature emphasizing the inertia of monetary policy. Morocco's central bank tends to smooth out changes in its rates, trying to avoid abrupt differences with previous rates.

The introduction of the explanatory variable M1, in expanded versions did not confirm the existence of a Taylor-type rule. The coefficients (gamma) associated with the M1 are all negative, such as those relating to inflation. One may wonder whether the Ricardian monetary targeting, based on monetary control, is not spirit to make way for an inflation Wicksellian targeting type which directly targets a standard inflation rate using the interest on the money market. Would the significant decrease in the rate of money supply by 16.5% to 6% between 2007 and 2010 be a sign of the transition?

In developing countries, studies on estimating the reaction function of central banks may be close to ours are rare.

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III-5 Empirical results of the Taylor rule in a few developing countries

In the Mediterranean area, Yilmzkuday and Yazgan (2004) studied monthly data, the monetary policy rule of the form proposed by Taylor looking forward to Turkey over the period 2001M8-2004M4 and 1991M1-2002M12 period for Israel. Regarding the basic backward version, the authors find a negative coefficient for non-compliant inflation gap: -0.1 to -0.3 for Israel and Turkey, and a positive coefficient in line for the output gap: 0.8 and 0.2 for Israel to Turkey. For the forward version, the estimated coefficients of the inflation gap are 0.95 for Turkey and 0.73 for Israel; the values of the output gap are 0.54 for Turkey and 0.22 for Israel. Then, the authors conclude that the forward looking Taylor rule appears to be the attitude of central banks in Turkey and Israel, but Turkey has carried out a more restrictive monetary policy than Israel during the periods studied. However, integration as an argument in the reaction function of other variables like the growth of monetary aggregates, the deviation of the exchange rate relative to real exchange rate equilibrium or growth rate changes Nominal have no significant effect on the reaction function of these two countries.

In his study of the monetary regime in Europe, Hericourt (2005) made the estimation of the augmented forward version by the short-term German interest rate for Greece over the period 1988 to 2000. He found a non-compliant coefficient (-1.1) for the inflation gap, a very low coefficient (0.031) for the output gap and a high coefficient (2.5) for the German interest rate.

In the case of African countries, Abuka et al (1998) -quoted by Tenou (2002)-have made an estimate of the monthly variances of inflation and production of the Central Bank of Uganda from 1990 to 1998. They found a low coefficient (0.11) for the inflation gap and a negative value (-1.16) for the output gap. These coefficients are not consistent with the existence of a Taylor rule for the country. Moreover, in his estimation of a Taylor-type rule for Uganda in dynamic forward version for the period 1988-2006, Okot (2008) confirm these results with a coefficient of 0.03 for the inflation gap and -0,8.10-5 for the output gap.

Tenou (2002) proceeded to the estimation of a Taylor-type rule, with smoothing and without anticipation, for the CBOAS over the period 1991 in 1999, by considering as inflation gap the inflation differential between the Union and France and by including the variable "interest rate differential between France and the Union". He obtains 0.7 as coefficient of the inflation differential, 1.25 for the output gap and 0.96 for the difference of the interest rate.

Kamgna, Nguenang, Talabong and Ould (2009) estimated the reaction function of the Bank of Central African States (BCAS) by distinguishing two periods: 1986-2006 and 1994-2006. The authors used two versions: a forward looking rule and a simple Taylor rule. They also introduced two additional variables in the original equation of Taylor: the mass of broad money M2 and the interest rate differential between the BCAS and France.

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The two basic and augmented by the monetary aggregate M2 forward versions lead to a positive coefficient for the output gap, respectively, equal to 0.07 and 0.11 and negative coefficients for the inflation differential, respectively -0 ,55 and -0.7 and a negative coefficient for the monetary aggregate equal to -0.26. While the introduction of interest rate differential between the BCAS and France improves the results of their assessment, with positive coefficients: 0.47 for the inflation gap and 0.5 for the output gap, but with negative coefficients: -0, 13 for M2 and -3,5 for the interest rate differential. Allowing them to conclude that the relevance of a Taylor-type rule augmented by the M2 and the interest rate differential

The coefficients for the first period (1986-2006) are 0.71 for the inflation differential and 0.18 for the production and the monetary policy of the BCAS does not correspond to the Taylor rule. While the period 1994-2006, the coefficients are respectively 1.34 and 0.16. BCAS would be more responsive to pressure on inflation and fluctuations of the activity; conduct of monetary policy seems more consistent with a Taylor-type rule.

III-6 Hypothesis of a discretionary monetary policy by BAM and specificities of the Moroccan economy

The links which can be made between certain developing countries and our results allows us, indeed, to remain cautious on the implementation of rule of conduct of monetary policy Taylor-type in the country who are still in phase of economic maturity. Our results lead us to consider the discretion hypothesis of BAM monetary policy. The specificities of the Moroccan economy and certain facts lead to support this hypothesis. Recall that in the so-called developed economies, the benefit of the rule lies in the credibility given by stakeholders of monetary and financial markets, the ability of monetary authorities to effectively fight against inflation.

The reputation of the Central Bank can contribute to greater effectiveness of monetary policy when it succeeds in sending the signal to the markets to anchor expectations of all agents: the financial markets, businesses, households and world. However, the specifics of the Moroccan economy mean that the expected signal by all economic agents would not be as crucial to their expectations. In this "Small open country," the weight of agriculture, export of phosphate, tourism and remittances from Moroccans Resident Abroad is a full third of its GDP.

Monetary and financial markets are in Morocco at the beginning of their development, potential anchoring of expectations is not as important in countries where the financing of the economy is largely assured by the markets. In Morocco, the banking sector remains the main source of financing for the economy. Another specificity of the Moroccan economy is weak "traditional" of its inflation and strong growth rate.

Similarly, it should emphasize the structural weakness of long-term saving in Morocco. According to a study of Entrepreneurship Monitor (8), it seems that nearly 70% of saving the country comes from short-term liquid investments. While long-term savings in the form of securities (treasury

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bills, bonds, shares and OPCV ...), deemed to be poorly paid, would represent about 6% of GDP.

Knowing the rate of investment (one of the engines of the Moroccan economy) to finance a rising trend and that they would be financed largely by short-term credit, it gives us one of explanations to the structural deficits of banks' liquidity, especially since 2007. It is this imbalance between savings and investment that would push banks to seek additional funding to Bank Al-Maghrib, as shown in graph 7 below:

0

200

400

600

800

1000

1200

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

billi

on d

irham

s

I nvestment ratesrate of savingAmount demanded by the banking sector

Graph 7.Profile of the series saving /investment and requests of financing of the banking sector (2000-2009)

Source: Author from the data of BAM and HCP

Morocco, where the banking sector is at the forefront in the financing of the economy, monetary authorities first seek to regulate the liquidity available to banks. The operational goal of BAM is to influence the interest rate on overnight interbank. The relay is taken by the lending rates that commercial banks charge for different economic actors, taking into account a risk premium, which may be "quasi-discriminatory" against some customers.

Moreover, the term "supervisor", the fight against inflation that has been assigned to BAM operational framework for the management, daily liquidity conveyed to the economy via the banking sector. Discretionary monetary policy which we advance here the hypothesis is used to regulate changes in liquidity in the interbank market on a daily basis. It went from a situation of excess to a state of need from the end of 2007, as shown in graph 8 below:

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0,0%

0,5%

1,0%

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0925

/11/

2009

Amount demanded (In million dirhams)Amount served (In million dirhams)Intervention rate of BAM

Graph 8.Intervention rate and amounts asked by the banking sector and served by the BAM (2000-2009)

Source: Author from the data of BAM and HCP

Conclusion

The gradual opening of the Moroccan economy to the outside and the important reforms to liberalize monetary and financial markets, led by the monetary authorities of the country during the past three decades, justify our questioning the primacy of monetary policy in Morocco. And especially after the central bank of Morocco (Bank Al-Maghrib) has evolved its practices and instruments of monetary policy by the standards of major central banks, ECB and FED, through direct control of the currency to indirectly control through interest rates.

Also, the results of our empirical study over the period 1995-2009, does not allow us to confirm the establishment by, BAM, an active monetary policy via a Taylor-type rule. And this following the estimation of the six versions made by the static and dynamic backward-looking and forward-looking, with and without addition of the monetary variable M1 (augmented version).

Indeed, the estimates coefficients (alpha) for the inflation gap are not expected sign. They are all negative. Both say that the values of the coefficients (beta) of the output gap are all positive, as suggested by Taylor and from the empirical literature. In contrast, in the dynamic versions, the estimate smoothing coefficient (rho) is consistent with that observed in the empirical literature. Under these conditions, we hypothesize that monetary policy of BAM rather discretion. The Moroccan economy specificities and certain facts lead to support this hypothesis.

Moroccan monetary and financial markets are not as developed as in developed countries, the potential anchor expectations is not as crucial in countries where the financing of the economy is largely assured by the markets. In Morocco, commercial banks are the main source of financing for the economy. Also the Moroccan economy is known for weakness "traditional" in its inflation and strong growth rate.

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The Moroccan Central Bank should first seek to regulate the liquidity made available to commercial banks. The operational goal of BAM is to try to influence the overnight interbank interest rate. This is the cost of funds for banks and ultimately the cost of credit for the economy. The interest rates, operating in a corridor, are now the first transmission channel and momentum of monetary policy to the real economy. It is therefore essential to seek and identify clearly the specific transmission channels of monetary policy in the Moroccan economy. In a country where the informal economy (underground) has a significant weight (20%), this specifically involves the development of "institutional" statistical monitoring tools to understand the behavior of all actors and economic agents.

The Moroccan economy is in development, the household consumption of household goods, thus cars and real estate acquisition is an important component of domestic demand. Similarly, the high rate of youth unemployment (often graduate) prompting the creation of small (or very small) and medium enterprises, induced financing needs. Hence the importance of credit consumer and investments made available to the Moroccan economy through the banks and, increasingly, by credits companies in a country where more and more people are becoming “wage-earners” and which is now developing mass consumption. Also, a country where women, with an education level now comparable to that of men, join the labor market in all large cities.

Indeed, it is important to note that measuring the impact of active monetary policy interest rates on the Moroccan economy will make sense only after having previously identified the changes that it could induce in the arbitrage behavior of economic agents (savings/consumption of household, investment of companies and investment/financing of monetary and financial market operators) in an economic field which remains, nevertheless, slightly banked. In the best case (urban areas), the rate of bank does not reach more than 47%, while it would be double in developed countries.

It should also be noted that BAM has enjoyed operational autonomy in setting interest rates only since 2006. With its new status, the central bank of Morocco gradually aligned itself with international standards in terms of regular meetings of its Monetary Policy Council concerning interest rates. These meetings are followed by a briefing to the markets, thus justifying the guidelines of monetary policy, given the economic outlook and inflation risks.

The speech of the BAM Governor is strongly influenced by those of major central banks like the ECB or the Fed, with a search, display, reputation and credibility to the institution. This "decorum", can easily leave us succumb to the idea of the existence of an active monetary rule like Taylor. However, ours estimates of the reaction function of the BAM does not allow us to confirm.

The conduct of monetary policy operational framework for BAM management, daily liquidity conveyed to the economy via the banking sector. Discretionary monetary policy which we advance here the hypothesis focuses on the regulation of liquidity in the interbank market

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on a daily basis. It went from a situation of excess to a state of need from the end of 2007.

Recall that BAM, like other central banks, aims the price stability but also the functioning of the money market. Monetary policy should guide interest rates in order to ensure the preservation of purchasing power of money. Regarding the money market, the central bank's mission is to respond to pressures of capital markets to meet potential liquidity needs.

According to the separation principle in the conduct of monetary policy in Goodfriend (2009) (three policies of the central bank), the BAM credit and interest rate policies, which appear in the service of the liquidity, they would not conflict with monetary policy that seeks to control the money supply in the long term? This conflict may be causing the lack of a positive relationship between the inflationary pressures that have arisen during our study period from 1995 to 2009 and the changes in interest rates.

The conclusion we can now draw is that liquidity is at the heart of the intervention system of BAM, in a context of significant reduction in the rate of monetary reserve from 16.5% to 6% between 2007 and 2010 (9). But we can question whether, as an instrument for controlling the money supply through monetary reserve, this is still valid enough ?

Under these circumstances, one wonders if BAM would it not currently undergoing the transition from a Ricardian monetary targeting, based on control of monetary aggregates (M1 and M3), to a Wicksellian targeting inflation type directly to a standard inflation using interest rates on the money market.

Bibliography

Agénor P-R., El Aynaoui K., (2008), « The transmission mechanism of monetary policy in Morocco : An analytical framewor », Workshop, “Monetary Policy and Inflation Targeting”, 24-25, October, Tunis. Aglietta M., (2010), La crise. Les voies de sortie, Michalon Editions. Aglietta M., Berrebi L., (2007), Désordres dans le capitalisme mondial, Odile Jacob Economie. Aglietta M., Rebérioux A., (2004), Dérives du capitalisme financier, Bibliothèque Albin Michel Economie. Baddi H., (2010), « La stabilité de la fonction de demande de monnaie au Maroc », 2ème Session, Ecole Académique Modélisation et Prospective Economique, 26 mars, Rabat.Bank Al-Maghrib, Rapports annuels, partie sur la Politique Monétaire, de 2000 à 2009, http://www.bkam.ma.Belhadj Aram, (2008), « heterogeneity of monetary regimes in Maghreb : an illustration with national Taylor rules », colloque international “ouverture et émergence en méditerranée”, Rabat 2008.

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Bordes C., Laurent Clerc L., (2010), « L’art du central banking de la BCE et le principe de Séparation », direction générale des études et des relations internationales, document de travail n°290, août.Bricongne J-Ch., Fournier J-M, (2008), « Comment anticiper les décisions de la BCE et de la Fed », Division synthèse conjoncturelle, note de conjoncture, décembre.Cherbonnier F., Pochon F., (2004), « Une comparaison du comportement récent de la Réserve Fédérale et de la Banque Centrale Européenne », Ministère de l’économie des finances et de l’industrie, Direction de la prévision, Analyse économique n° 24, janvier.Clarida R., Gali J., Gertler M., (1998), « Monetary policy rules in practice: some international comparison stability », European Economic Review, vol 42.Colander D., (2009), Post Walrasian Macroeconomics Beyond the Dynamic Stochastic General Equilibrium Model, Cambridge.

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Appendix: Results of our estimations by the GMM

Coefficient

C1( r -α. π )

C2(1+α)

C3β

C 4γ

Numbre of instruments

Hansen's test statistic (p-

value)

Basic version 0.080379(*)

-1.75682

6(*)

0.707720(*) −¿ 10 3,9

(0,8)

Augmented

version0.033009(*) 0.02558

0(***)0.04183

3(*)

-0.04651

3(**)28 6,7

(0,99)

Table 3.The static backward version

Coefficient

C1(1-ρ ) ( r -α. π )

C2ρ

C3(1-ρ )(1+α)

C 4β (1-ρ )

C5γ (1-ρ )

Numbre of instrument

s

Hansen's test

statistic (p-value)

Basic version

0.003038(*)

0.900404(*)

0.013895(**)

0.016481(**) −¿ 23 6,7

(0,99)Augment

ed version

0.003804(*)

0.908365(*)

-0.01502

2(*)

0.023084(*)

-0.01987

0(*)33 12,5

(0,99)

Table 4.The dynamic backward version

Coefficient

C1(1-ρ ) ( r -α. π )

C2ρ

C3(1-ρ )(1+α)

C 4β (1-ρ )

C5γ (1-ρ )

Numbre of instrument

s

Hansen's test

statistic (p-value)

Basic version

0.002138(*)

0.922419(*)

0.020468(*)

0.006288(***) −¿ 27 8,5

(0,99)Augment

ed version

0.001676(*)

0.946848(*)

0.010673(***)

0.007530(**)

-0.01223

1(*)27 8,4

(0,99)

Table 5.The dynamic forward version

(*) significant at 1%, (**) significant at 5%, (***) significant at 10%

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1() However, we must recognize that this "timidity" (risk aversion) of Moroccan banks, they are often criticized, combined with strict prudential regulation by BAM, is probably safe from mishaps that some banks may be exposed in other countries.2() See for a review of the empirical literature on this question, the study of Baddi H., (2010), "The stability of money demand function in Morocco", 2ème session , School Academic Economic Modelling and Forecasting, March 26 , Rabat.3() This question is the subject of controversy among economists from different schools of thought.4() By + Or - 100 basis points around the main rate: a marginal rate of advance to 24 h, a rate of advance and return cash to 7 days and a marginal rate of deposit facilities to 24 h.5() According to the main objective of the central bank, we consider the anticipation of one of the variables the inflation if it is the price stability, the output gap if it is the economic activity or both variables in case of a duality of both objectives.6() Test applies only if the explanatory variables are exogenous.7() p-value corresponding to the statistics of Hansen, all being above 5%.8() www.maroc-biz.com/data_5/even9() BAM