Modelling Financial Crises Linked to Foreign Exchange Regime Transitions: the Case of Morocco

This study simulates financial crises within Morocco's exchange rate market using over 15 years of quarterly data. A Structural Vector Autoregressive (SVAR) model is developed to analyse key economic variables influencing Morocco's forex dynamics. The paper outlines four distinct crisis scenarios related to the Exchange rate liberalisation process, explicitly considering the impacts of the COVID-19 pandemic. The simulations reveal critical insights that can assist academics and economic stakeholders effectively manage the risks associated with exchange rate transitions and global financial crises in developing countries. The findings emphasise the importance of tailored policy responses and risk management strategies, which are crucial for similar economies facing vulnerabilities in their foreign exchange markets. Additionally, this research offers a framework that can be adapted to analyse the economic dynamics of other developing nations, enhancing their ability to navigate periods of economic turbulence and fostering resilience against future financial shocks.