Monetary Policy and Unemployment in Morocco: A DSGE Model Approach with Labor Market Frictions and Nash Wage Bargaining

Abstract

This research aims to understand how changes in monetary policy can affect the unemployment rate in Morocco and how these effects can be modeled using a dynamic stochastic general equilibrium (DSGE) framework. We have evaluated a quantitative macroeconomic framework that incorporates labor market frictions and unemployment. Our model is primarily based on a DSGE monetary model developed by Christiano et al. (J Polit Econ 113:1–45, 2005), Smets and Wouters (Am Econ Rev 97:586–606, 2007), and Gali (in: Handbook of monetary economics, Elsevier, 2010). Our findings suggest that restrictive monetary policies, characterized by higher financing costs and higher interest rates, can have negative effects on the Moroccan economy, particularly affecting low-income households. On the other hand, a positive shock to employment leads to an expansion in output and an increase in consumption, indicating that an increase in employment can contribute to economic growth and a better use of resources. However, it can also lead to a slight increase in inflation, which can be managed through appropriate monetary policy interventions. Moreover, a negative shock to unemployment results in an expansion of output and an increase in consumption, highlighting the potential challenges associated with a more restrictive monetary policy.