Effectiveness of the asset price channel as a transmission mechanism for monetary policy in Morocco: Evidence from a VAR analysis

Résumé

The stock market has a crucial role in modern economies, serving as a means to diversify domestic sources of funds and provide avenues for productive investments. 

The presence of a meaningful correlation between macroeconomic variables and the stock market is crucial for the stock market to fulfill this role effectively.

Various theoretical and empirical models have been used to analyze the relationship between monetary policy and stock prices. The results of these models provide evidence that monetary policy can affect stock prices, and vice versa.

The objective of this paper is to study and analyze the relationship between the stock market (MASI) and monetary policy in Morocco, through a vector autoregression (VAR) model covering the period 2007Q1- 2017Q4.

By analyzing the various empirical studies on the effect of monetary policy on the stock market via the stock price channel, we found that the stock price channel in Morocco is not operational.

The results of our VAR model confirmed this finding. We found that during the studied period, there was no significant relationship between monetary policy and the Moroccan stock market. These results proved the existence of a dysfunction in the transmission mechanism of stock prices in Morocco, which invalidates our central hypothesis that there is interdependence between the Central Bank and the stock market.

Furthermore, due to the lack of long and sufficient statistical data series, especially the Real Estate Asset Price Index (REAPI), these contributions that we were unable to make will further enhance our work.

Keywords: Transmission mechanism of monetary policy, stock price channel, VAR, impulse response function, cointegration

JEL Classification : E4, E5, G15

Paper type: Empirical research