Macroeconomic Effects of Grain Price Volatility in Morocco

This paper investigate how cereal price volatility impacts import bill, tax revenue and foreign exchange reserves in Morocco. It uses GARCH family models to characterize the price and exchange rate volatility functions, ARDL model and Toda and Yamamoto's (1995) causality test to study respectively cointegration and causal relationship. Based on monthly data between January 1999 and December 2019, we find that 1% increase of price volatility and volatility-import leads to respectively increase the import bill by 0.07% and 16.7% on the long run. Meantime, the short-run estimates suggest that the effects of price volatility and the volatility-import level are negative meaning that the lagged value of these variables will have a positive impact on the next month's import bill. Thus, we assume that price volatility should be heavier on the import bill when the annual production is low. Our results also indicate that cereals price volatility can induce serious consequences because it directly causes an increase in the overall import bill and indirectly influences import tax revenues and foreign exchange reserves, especially when it is associated with a poor domestic harvest.