Unconventional Monetary Policy Response to Covid-19 and Its Impact on Inflation in Morocco

Hicham Ouakil, Abdelhamid Moustabchir, Hicham El Ouazzani
Statistika, 104(3): 306–319
https://doi.org/10.54694/stat.2024.8

Abstract
This study explores the impact of unconventional monetary policy on Morocco’s  economy during the Covid-19 pandemic. We used a hybrid model combining a financial dynamic stochastic general equilibrium (DSGE) model with a standard epidemiology model, enabling us to consider both economic and epidemiological factors. Our results indicate that unconventional monetary policy cannot fully mitigate the adverse effects of a pandemic, except for an exogenous increase in Central Bank claims. We also found that Morocco’s high inflation is partly due to Bank Al-Maghrib’s unconventional monetary measures in response to the pandemic. Our research underscores the importance of monetary authorities balancing the benefits and risks of unconventional monetary policy. While it can stimulate the economy during crises, it should be used judiciously to avoid long-term negative effects. Incorporating epidemiological factors into macroeconomic models is crucial for understanding the intricate interplay between the economy and public health crises.

Keywords
Monetary policy, financial DSGE, epidemiology model