DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ 2. External balances, exchange rate misalignment & exchange rate regimes in developing countrie Hind LEBDAOUI, PhD - Professeur de Finance & Economie, Al Akhawayn University Joerg WILD, PhD - Professeur de Finance & Economie, Shanghai Dong Hua University Abstract The purpose of this research article is to investigate the causal link between the exchange rate misalignment, the exchange rate regime and the external balances in the case of developing countries with a special focus on the Moroccan case. Results show a long-run causal link between exchange rate deviation from its equilibrium value (misalignment) and the external balances. Intermediate regime used by the Moroccan monetary authorities seem to result in better external balances when it is compared to both fixed and floating regimes. Granger causality test sows that exchange rate may predict the future current account deficit in Morocco; hence, a special attention should be given to exchange rate evaluation in Morocco. However, undervaluation is not a magic solution to stabilize the external balances, and deterioration of the terms as result of luck in exports diversification and a weak domestic consumption. Keywords: Exchange rate regimes, BEER, Panel cointegration, misalignment, external balances in Morocco, Developing countries. Les Balances Externes, Désalignement du Taux de Change et les Régimes de Change dans les pays en développement Résumé Cet article vise à analyser la relation de causalité entre : le désalignement du taux de change, les régimes de change et les équilibres externes dans le cas des pays en développement, avec une focalisation particulière sur le cas Marocain. Les résultats révèlent un lien à long- terme de causalité entre la déviation du taux de change par rapport à sa valeur d’équilibre (désalignement) et les équilibres externes. Le régime de change intermédiaire, tel qu’adopté par les autorités monétaires marocaines, semble se traduire par des comptes extérieurs relativement EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 329 PARTIE III stables quand il est comparé à la fois au régime fixe ou flottant. Le test de causalité au sens de Granger montre que le désalignement du taux de change peut prévoir la balance des comptes extérieurs. La dévaluation, à elle seule, n’est néanmoins pas la solution magique pour stimuler les équilibres externes ; puisque le manqué de diversification des exportations ainsi que la faible consommation domestique ne font que détériorer les termes de l’échange et ainsi les équilibres externes. Mots-clés : régimes de change, BEER, Panel cointégration, désalignement, équilibres externes au Maroc, Pays en développement. 330 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ Introduction In the last few decades, the exchange rate was assumed to be the main force triggering financial crises188, therefore, many papers advocated the use of flexible exchange regime as being the appropriate exchange rate to ensure both internal and external balances (Edwards, 2001). This paper targets this topic and assesses the relationship between exchange rate regimes adopted by developing countries and its influence on the external balances to check whether the Moroccan economy is adopting the optimal exchange regime. Since the de facto regime, officially declared by central banks to the IMF, is not matching the de jure one, the regime in operation (Reinhart & Rogoff, 2004); this paper use de jure exchange rate regime instead. The choice of exchange rate regime influences the consistency of exchange rate regime and its equilibrium value. The estimation of an equilibrium value for exchange rate has been prevailing in recent year as a tool to reach the external but also the internal balances. Proposed by (MacDonald & Clark, 1998), the behavioral equilibrium exchange rate (BEER) emerged as a fundamentals-based measure to compute the equilibria exchange rate, it associates the exchange rate with the relevant macroeconomic variables in a behavioral fashion. The BEER setting fits the lack of data in the case of developing countries and features simplicity and objectivity; the equilibrium values are computed by distinguishing the cyclical components of the exchange rate from the current ones. (Dubas, 2009) assessed the ability of exchange rate regime to control the misalignment in both developing and developed countries. Using a panel cointegration model, he concluded that intermediate exchange rate limits the misalignment in the case of developing countries, but does not appear to be relevant in the case of developed countries. (Holtemoller & Mallick, 2013) argued that the flexibility of the currency regime helps minoring the exchange rate deviation from its equilibria, they went further to conclude that misalignment could be a leading indicator of a potential crisis (Nouira & Sekkat, 2015), but for (Owoundi, 2015) who analyzed the case of Sub-Saharan countries, he defend the non-relevance of exchange rate regime to the effect of misalignment on the economy. While some researches advance that the exchange rate misalignment may jeopardize the external balances and therefore the economic growth and call for keeping the exchange rate closer to its equilibrium level (Drabek, 1998; Gnimassoun & Mignon, 2015). Others on the other hand, argue that a depreciated exchange rate enhances the economic growth trough boosting exports levels (Blecker & Razmi, 2009). Monitoring the exchange rate along with exports, financial deepening, GDP and equity prices is eminent to prevent currency crises exports, deviations of the real exchange rate from trend, the ratio of broad money to gross international reserves, output, and equity prices. When it comes to economic growth and exchange rate misalignment and, a 188  The European union (1993), Mexico (1994), Brazil (1998), Turkey (2001) and Argentina (2002) EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 331 PARTIE III majority of papers concluded negative correlation, domestic macroeconomics and trade are also negatively affected, and economic distress appears as a natural result of currency misalignment in African countries (Ghura & Grennes, 1993; Razin & Collins, 1997; Vieira & MacDonald, 2012). (Blaise Gnimassoun & Mignon, 2013) showed that currency deviation from equilibrium is a main cause of current account imbalances persistence: overvaluation may cause a persistent imbalance when it is higher than 11 percent in industrialized countries, and higher than 14 percent for the non-Eurozone members, whereas undervaluation or weak overvaluation are not expected to cause any persistence. (Béreau, Villavicencio, & Mignon, 2009) also defended the ability of exchange rate undervaluation to boost exports and promote growth; conversely overvaluation may reduce net exports. Exchange rate volatility and deviation from equilibrium hinders the economic growth when it is large, but a moderate deviation could enhance growth (Aguirre & Calderon, 2005). The institutional quality is a crucial determinant of exchange rate regime; the press freedom and the institutional quality are sine qua none conditions for the de facto regimes’ implementation, and a good institutional quality decreases the currency misalignment (Meon & Minne, 2014; Nouira & Sekkat, 2015). This paper attempts to fill the gap in literature addressing the misalignment and the external balances from different dimensions: First, we determine the misalignment of exchange rate using a behavioral equilibrium exchange rate method; second, we assess the relationship between the exchange rate regime, the exchange rate regime and the current account deficit. The relationship between the exchange rate deviation and the economic growth through external balances seems to be determinant, knowing the importance of an external balance-based economic growth in developing countries and especially for a country like Morocco. This would be ensured if external competitiveness, foreign capital and investment inflow (Elbadawi, Kaltani, & Soto, 2012). This growth based on the export-led requires an ad-hoc manipulation of the exchange rate levels rather than an unbiased equilibrium value (Razmi, Rapetti, & Skott, 2012), China RMB undervaluation is a good example of the effectiveness of an artificially undervalued currency backed by reserve accumulation, other Asia countries following the same strategy to stimulate current account by enhancing external competitiveness. The remain of this paper is organized as follow: Section 2 analyses the impact of exchange rate misalignment and regime on the external balances. Section  3 focuses on the granger causality between the Moroccan dirham (MAD) misalignment and external balances in Morocco. Section 4 wraps up this research paper. 332 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ I. Empirical analysis This first part of our study determines the misalignment of exchange rate of the currencies of over 50 developing countries reported in Table 1. To this end, we use the Behavioral equilibrium exchange rate (BEER) and then filter the deviation to determine the misalignment of each country’s currency. Fundamentals used in this section are reported in table 2. Tableau 1. List of the observed countries Argentina Morocco Egypt, Arab Rep. Rwanda Burundi Madagascar Ethiopia Sudan Benin Mexico Guinea-Bissau Senegal Burkina Faso Mali Equatorial Guinea Somalia Brazil Mauritania Guatemala Swaziland Chile Mauritius Honduras Syrian Arab Republic China Malawi Haiti Chad Cote d’Ivoire Niger India Thailand Cameroon Nigeria Iran, Islamic Rep. Tunisia Congo, Rep. Pakistan Jordan Tanzania Colombia Panama Kenya Uruguay Comoros Philippines Sri Lanka Venezuela, RB Djibouti Paraguay Zimbabwe Congo, Dem. Rep. We use the real effective exchange rate as a proxy of currency exchange rate, government spending as proxy of fiscal policy, the monetary policy is represented by the financial depth, terms of trade for trade liberalization and Balassa-Samuelson effect as captured by the productivity differential. EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 333 PARTIE III Tableau 2. Variables definition Variable Definition First stage regression   Dependent variable   REER Real effective Exchange rate Independent variable   GovCons Government consumption as percentage of the GDP TOT Terms of trade Depth M2 (money & quasi money) as percentage of the GDP Productivity GDPpc to the geometric average of G7 GDPpc Openness Trade openness Crisis Dummy 1 for crisis year Second stage regression   EAB External accounts balance Misalignment computed from the first stage Exports Total exports values Savings Domestic savings GDPpc Per capita GDP Regimes Exchange rate Regimes Dummy 1 for fixed, 2 for intermediate Regulation Government control Kaopen Capital control 1. Unit root test The first step of the analysis uses Fisher unit root test to check for the stationarity of variables under investigation. Tabel 3 reports first differenced variables stationarity test, and results shows that our variables are stationary after the first difference. Therefore the set of variables is considered I(1) and a potential cointegration relation is expected. We drop the variable reserve from the cointegration regression since it is I(0). 334 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ Tableau 3. Panel unitroot test Variables First difference X² -statistic Real effective Exchange rate -3.72*** Government consumption -2.98*** Net capital inflow -3.54*** Terms of Trade -5.46*** Financial depth -5.86*** Productivity -4.58*** Openness -4.81*** Reserve -15.08*** 2. Cointegration test and estimation In the second step, we check for the existence of the long-term relationship between the variables used in the regression. Where the error term is decomposed into . The Null hypothesis is no cointegration exists where of the panel . The second model used in this regard is the 189 one proposed by (Persyn & Westerlund, 2008) which is a cointegration technique based rather on structural dynamics, instead of the residuals as proposed by (Pedroni, 1999), his error correction model allows for heterogeneity between long-run cointegrating vector for variable at level and the short-run dynamic for first-differenced variables and allows for dependence between cross- sections while controlling for the Panel heterogeneity both in the short and long-run. Tableau 4. Panel cointegration test: Westerlund estimation     value z-value p-value Gt -statistic -2.562** -1.383 0.083 Pt - statistic -18.136*** -8.877 0.000 Note: (***), (**) and (*) denote significance at 1% and 5% and 10% respectively. The lag and lead length were set to 2 and the width of the Bartlett kernel window to 2, the P-values and z-value reported in the table are acquired by bootstrapping replications. 189  For the panel cointegration statistics, the alternative hypothesis H1 is ; i=1, 2, 3...,n. The group mean panel cointegration statistics allows for heterogeneity and the alternative hypothesis is given by H1 is ; i=1, 2, 3...,n. EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 335 PARTIE III The (Persyn & Westerlund, 2008) test results reported in table 4 and confirms the presence of at least one cointegrating relation among the variables in the long-run. To estimate the long- run relationship between exchange rate and the fundamentals, the framework proposed by (Pedroni, 1999) is applied in this paper since it deals with the spurious regression while allowing heterogeneity between panel countries, furthermore it allows for unbalanced structure and heterogeneity of slope coefficients along cross-sections. The (Pedroni, 1999) model starts by estimating the residuals of the long-run model: Gt is group mean test and is based on a weighted estimates of each country separately, it tests for the null hypothesis of no cointegration in the panel as whole unit (H0 : =0) against the alternative of at least one panel unit is cointegrated (H1: < 0); Pt is estimated for the panel as whole, test for the null being all cross-sections are not against the alternative of all cross-sections are cointegrated (H1: <0 . The model is written as an auto-regressive distributed lag model of order (p,q,….l) as in the Eq. 3a above. By taking into consideration the convergence factor, we get the Eq. 3b were the is the REER and are the fundamentals; t accounts for the short-run dynamics of y across countries. The null hypothesis being the coefficient of the first lag of both y and x as explanatory variables is equal to zero , the alternative hypothesis is both coefficients are different than zero . Table 5 reports the estimated coefficients of the fundamentals used to build the BEER using the pool mean group (PMG) and dynamic fixed effect (DFE) framework. We employ the test proposed by (Hausman, 1978) and preference is given to PMG estimates. Tableau 5. Results of cointegration estimation   PMG DFE Government consumption 0.16 0.18*** Net capital inflow -0.29 0.01 Terms of Trade -0.16** -0.14*** Financial depth 0.23 0.09** Productivity 0.17** 0.03 Openness -0.32*** -0.29*** Note: for t-statistic(*), (**) and (***) denote significance at 10% , 5% and 1% respectively. z-statistic for the PMG and PM and t-statistic for DFE. The employed regression routines controls for time and country effect in all PMG and DFE estimations. 336 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ 3. Misalignment estimation Misalignment is the deviation of the exchange rate from its equilibrium. The combination of the variables influencing long-run REER (GovCons, TOT, Openness, NCF, Depth, Productivity and Crisis) yields the equilibrium values of each period. Next, we use (Hodrick & Prescott, 1997) (HP) filter to smooth out the BEER equilibrium by removing the short-term variations of the explanatory variables to get the permanent equilibrium which is less volatile than BEER. The misalignment (cyclical value) is calculated by taking out the permanent values of the REER as: 4. Empirical results The presence of misalignment is a result of a weak reaction of exchange rates to the economic fundamentals. As explained earlier, the equilibrium exchange rate is calculated by filtering the cyclical from permanent movements values of the developing countries’ economies macroeconomic fundamentals and based on a Behavioral equilibrium exchange rate method. We measure the misalignment for the period from 1980 to 2014. Results show that misalignment maximal value is an overvaluation of 211% and the minimal value is an undervaluation of 218% with a standard deviation of 49%; majority of deviations are positive (overvaluation). Thus, there is a good chance to check the possibility of deal with external imbalances by an exchange rate adjustment. The second part of this research paper, it focuses on the relationship between the external balances of developing countries and the exchange rate misalignment, the exchange rate regime and the institutional quality. The GMM approach developed by (Arellano & Bond, 1991) is employed in this part to link external balances to the exchange rate misalignment and regime. The basic model is written as: where i and t are country and time subscripts, EBit is the current account deficit, misit is the computed misalignment values, regimeit is the exchange rate regime, CVit is a vector of control variables and Tt and Fi are time-specific effect and country-specific unobserved effects proxies respectively, is the error term. The lagged value of the dependent variable EB it-1 is introduced to cope with the endogeneity problem and are source of the equation’s dynamic feature. EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 337 PARTIE III Tableau 6. External balance GMM panel regression (*), (**) and (***) denote significance at 10\% and 5\% and 1\% respectively. The over-identifying restriction test represented by p-value of Sargan statistic. As reported in table 6, the misalignment of REER does affect the external balances in developing countries, a positive value of misalignment (i.e. currency overvaluation) increases the current accounts deficits; the managed exchange rate regime appears to improve the current account balance. Contrary to (Nouira & Sekkat, 2015) our results show that when overvalued, the exchange rate seems to boost external imbalances, one way to explain this finding is the decline of purchases of foreign goods by the domestic consumption, and the price elasticity differential: imports demand elasticity should be higher than exports elasticity. This interaction between the financial and real sectors has been the subject of many research articles, and Morocco seem to be falling in the demand-following category (Wild & Lebdaoui, 2014). These diverging opinions suggest the presence of a threshold level before which a the positive or negative influence appears. The institutional quality does not show any influence over the external balance in developing countries, except from the regulatory quality, but the overall quality of the model is not significant when introducing the supervision indicators. There is no best/optimal exchange rate regime (Frankel, 1999) for all countries and times, this is what our research study confirms. The different exchange rate arrangements show similar coefficients with a slight preference to the managed exchange arrangements. Nevertheless, a good management of exchange rate may offset exports and imports shocks on the current account. This explains why many monetary authorities are recently moving toward more flexible exchange rate arrangements. 338 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ II. Granger causality between misalignment and external balances: The Moroccan case In this part of this research article, we analyze the causal relationship between the exchange rate misalignment in Morocco and the external balances with a special consideration to the crisis effect. The purpose is to check whether misalignment and current accounts could be used to predict each other. It is clear that developing countries exhibit a relatively high degree of misalignment and external balance deficit, and the intermediate regime seems to carry out relatively better when compared to the other exchange arrangement as reported in our results in Table 6. The Moroccan monetary authorities, by choosing to peg the exchange rate to a basket of currencies with a periodical revision, does indeed alleviate the current account deficit, this confirms the finding of (Dubas, 2009). Coefficients reported in table 7 show that the correlation between the misalignment and the external balances is positive but not very strong, a negative correlation exists between crisis and current account balance. Crisis as expected has a negative correlation with the external balances (can be easily seen in figure 3), the exchange rate regime seems to condition the effect of crisis on the current accounts balances. Tableau 7. Correlation matrix of the key variables of Moroccan case study     EB crisis mis ER reg acc stab rule External balances EB 1.00               Crisis crisis -0.01 1.00             Misalignment mis 0.41 -0.01 1.00           Exchange regime ER -0.11 -0.02 -0.23 1.00         Regulation reg 0.09 0.10 0.19 0.14 1.00       Accountability acc 0.12 0.14 0.16 -0.28 0.59 1.00     stability stab 0.01 0.19 0.18 0.04 0.51 0.48 1.00   Rule of law rule 0.07 0.19 0.13 0.00 0.71 0.75 0.70 1.00 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 339 PARTIE III Figure 1. Correlation of exchange rate misalignment and the main variables in Morocco It is also clear that the absence of a large foreign exchange market, that may allow a better valuation of the MAD does increase the chances of a large misalignment. From figure 3, the undervaluation of the Moroccan dirham did not trigger an adjustment of the currency to equilibrium from years; despite the attempts of the monetary authorities did not succeed to bring the currency to its equilibrium, the central bank’s interventions could not close the misalignment gap since the equilibrium level is subjective. Furthermore, the MAD misalignment seems to persist with a clear undervaluation in the last decade (Lebdaoui, 2013), and this repeated devaluations made by the government in the last decades fastened the MAD’s misalignment most of time. In this section we focus on the relationship between the misalignment of the MAD and the current account balance, therefore a long-run association is assessed and Granger causality between the two variables is tested. We use a vector autoregression model (VAR) based Granger causality test is used to this end: Where is a vector of parameters, is a vector of serially uncorrelated and homoscedastic normal errors, and ƒ (.) is a continuously differentiable function. As we concluded earlier in this study, the difference in exchange rate arrangements does 340 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ not worsen the external balances (Coudert & Couharde, 2009; Frankel, 1999; Holtemoller & Mallick, 2013; Owoundi, 2015)this paper examines the effect of macroeconomic fundamentals on real effective exchange rates (REER. In the present section we start from the finding that the exchange rate regime, as adopted by the Moroccan monetary authority plays a significant rule in boosting the external balances. This section sheds more light on the Moroccan case to assess the relationship between exchange rate misalignment and its impact on the external balances of the country. Tableau 8. Granger causality results Null hypothesis Statistic Probability Current account balance does not Granger cause Misalignment 3.93 0.14 Misalignment does not Granger cause Current account balance 5.13* 0.07 Current account balance does not Granger cause Crisis 3.18 0.21 Crisis does not Granger cause Current account balance 9.72*** 0.01 Crisis does not Granger cause Misalignment 1.04 0.59 Misalignment does not Granger cause Crisis 3.55 0.17 Note: (*), (**) and (***) denote significance at 10% and 5% and 1% respectively. The results of the Granger causality reported in table  8 concludes that there exists an evidence that current values of current account levels are predictable given the computed values of the misalignment, whereas no strong evidence exists to show the causality reverting the trend. It is obvious that misalignment does indeed Granger cause the current account balances, and the values of misalignment help predicting the future current account deficit in the future. Therefore, special precaution has to be made in the MAD’s evaluation process. Our results confirm the fact that the crisis is a predictor of the external balances. As a consequence, the current account is determined by many fundamentals, and this paper comes to confirm the effect of the economic cycle (crises) and the currency misalignment, both viewed as non-structural issues on the external balances supposed to be sustainable for the long-run. Compared to other developing countries, the value of the misalignment is relatively low in Morocco; this is due to the use of a basket peg that appears to be able to significantly affect the current account balance (Model (6) of table 6). The floating exchange regime impact in a lower extent the current account balance compared to fixed regimes. In fact, the Moroccan authorities were called upon to free the peg of the Moroccan dirham in many occasions, but based on our results, the peg to a basket seems to limit the downside effect on the external balances. The design of the basket is debatable though. As we clearly see in figure 3 that the undervaluation of the MAD did not adversely affect the current account deficit. One way to explain this finding is that this advantage of a devalued currency is offset by the terms of trade, featuring concentrated EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 341 PARTIE III and fragile exports, which are not able to compete internationally; a diversification of exports seems to be a good channel to improve the terms of trade, the external balances and thereby improve the economic growth. 342 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ Conclucion The purpose of this research article is to investigate the causal link between the exchange rate misalignment, the exchange rate regime and the external balances in the case of 50 developing countries with a special focus on the Moroccan case. The study is accomplished trough two stages, in the first stage the behavioral equilibrium exchange rate (BEER) is used to determine the misalignment of the exchange rate from its equilibrium level. The resulting values of misalignment are used in the second stage along with exchange rate regime dummy variables, capital and governance control, and crisis dummy variables to explain the external balances. Short- and long-run dynamics the BEER are determined using an ARDL based estimators: the pooled mean group (PMG) and the dynamic fixed effect (DFE) estimators. Furthermore, the second stage regression uses general method of moments (GMM) framework to analyze the relationship between exchange rate misalignment and regimes and external balances. The empirical analysis ends with a Granger causality analysis for the case of Morocco. Countries with intermediate regimes showed a better external balances in our analysis, but fixed regimes showed better influence on the current account than the floats. According to our results, the basket peg categorized as an intermediate regime along with the managed float appears to enhance the external balances in the developing countries, this is the same arrangement adopted by the Moroccan monetary authorities. The focus therefore should be on the evaluation of the currency itself including a rebalancing of the underlying basket and the ponderations of the composing currencies to close the currency misalignment. Even with the present basket peg, the monetary policy should pay a close attention to exchange rate evaluation since it is clear that undervaluation does not foster the external balances. The distortion effect of the misalignment on the economy through current account is not confirmed in the case of Morocco, yet the effect is undebatable. The nexus between the misalignment and the external balance is just another way to tackle the impact of the exchange rate misalignment on the economic growth. Therefore, the Moroccan authorities need to pay a close attention to the evaluation of the Dirham to boost its economic activity. The Moroccan dirham misalignment can serve as predictor of the external balances as proxied by the current account balance. The economic leverage of undervaluation is proved in the case of many developing countries (Couharde & Sallenave, 2013), but some accompanying measures to this cyclical instrument are required to keep both internal and external consistency, the question is not to find the optimal exchange rate arrangement, but the optimization of the monetary policy as a package. The misalignment, defined as exchange rate deviation from equilibrium, is certainly a problem to solve, but what is most important is stability of the MAD especially when it comes to the strategic pacification of the international transmissions in both trade and financial openness. Restoring the Moroccan external balance does not actually entail a large potential decline in the MAD since even with an undervaluation of the currency, the Moroccan current account EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE 343 PARTIE III kept declining. Furthermore, the stability of the current accounts in Morocco should focus on aspects of real and financial markets rather than exchange regimes optimization, the nature of the export-oriented economy should impose more focus on the stability of the economy as whole, diversification but also sophistication of exports became a must. This being said, the domestic consumption should also be taken care of to ensure the internal balance, which would induce a high competitiveness of local production and thereby boost the external balance of Morocco. The inter-temporal consumption theory might give more insights in the case of Morocco which, we suggest should be the subject of further future researches. 344 EQUILIBRES EXTERNES, COMPÉTITIVITÉ ET PROCESSUS DE TRANSFORMATION STRUCTURELLE DE L’ÉCONOMIE MAROCAINE DÉSALIGNEMENT DU TAUX DE CHANGE ET COMPÉTITIVITÉ References • Aguirre, A., & Calderon, C. (2005). Real Exchange Rate Misalignment and Economic performance (No. 315). Santiago. • Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58(2), 277–297. Retrieved from http://ideas.repec.org/a/bla/restud/v58y1991i2p277-97. html • Béreau, S., Villavicencio, A. L., & Mignon, V. (2009). 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