Unveiling Economic Growth Dynamics Across Inflation Regimes in Morocco: Insights from Regime-Switching Models

Abstract

This article investigates the impact of inflation on economic growth in Morocco across different inflation regimes. Regime-switching regressions were estimated using data from 2002 to 2022, identifying distinct inflation regimes that influence the impact of inflation and economic growth. The findings reveal that at low inflation levels (1.3% to 1.8%), inflation negatively affects economic growth, even though this regime provides a favorable environment for growth driven by investment and exports. In a moderate inflation environment (1.8% to 3.3%), both the negative impact of inflation and the positive effects of investment and exports on growth are diminished. Inflation regimes with rates below 1.3% or above 3.3% are found to be less conducive to economic growth. These results suggest that maintaining an inflation target between 1.3% and 3.3% could provide the most favorable environment for supporting Morocco's economic growth by encouraging investment and exports while minimizing the adverse effects of inflation.

Keywords: Economic Growth, Inflation Regimes, Threshold regressions, Inflation Targeting, Morocco

JEL Classification: O40, E31, C24