Modeling the impact of inflation on economic growth: Case of Morocco

Abstract

The relationship between inflation and economic growth has been the subject of considerable interest in recent decades. It has been the subject of many controversies between different currents of economic thought. Indeed, structuralists believe that inflation is essential for growth while monetarists perceive it as detrimental to economic progress. In addition, some empirical studies have confirmed either the positive or negative or even neutral relationship that exists between these two macroeconomic variables. This work aims to provide some answers to a question widely debated within academic circles. It is the relation of the impact of inflation on economic growth, to verify to what extent inflation is necessary or harmful for economic growth in the case of Morocco during the period 1970 to 2020. After carrying out a literature review on the different concepts studied (inflation and economic growth). We conducted an empirical study of the data collected from several sources, world bank, bank al maghrib. Using time series data (1970-2020) and a vector error correction model (VECM), we performed regressions to examine the effect of inflation on economic growth. Inflation is represented by the consumer price index (CPI), while economic growth is represented by GDP. The results found show that inflation has no impact on inflation in Morocco either in the long term or in the short term. However, there is a long-term causal relationship between economic growth and the three variables of our study, namely inflation, foreign direct investment (FDI) and gross domestic savings.

JEL Classification : E31, E42, G23.

Paper type : Empirical research.