Effects of Exchange Rate on Unemployment in Morocco Economy

Abstract

Given the high and persistent unemployment rates in Morocco, this paper investigates the effects of real effective exchange rates and other macroeconomic variables on unemployment in Morocco for the period 1991 to 2016. The ARDL results show that the exchange rate explains the largest proportion of variation in unemployment. Both depreciation in the Moroccan dirham and increase in inflation generate higher unemployment rates in Morocco in the long run. Money growth and GDP have negative relationships with unemployment, in the long run, indicating both variables' important roles in reducing unemployment rates. The study recommends that Morocco design an exchange rate policy and trading reform programs to maintain the strong real value of the Moroccan dirham. Moroccan authority needs to keep inflation under control and adopt policies that promote higher money growth to encourage investment and generate higher GDP growth to reduce unemployment rates in the Moroccan economy.