Exchange Rate Dynamics in the Arab Maghreb Union: A Panel Cointegration Analysis of Macroeconomic Determinants (1998-2023)

Abstract

This economic study uses a longitudinal panel analysis to look at the factors that affect the changes in exchange rates in five Arab Maghreb Union countries from 1998 to 2023 (n=125 observations). We find important long-term equilibrium relationships between exchange rates and macroeconomic fundamentals using a hierarchical methodological framework that includes static panel estimation, cointegration testing, and dynamic ordinary least squares (DOLS). The Fixed Effects Model, chosen by Hausman specification testing (χ² = 293.54, p < 0.001), explains 84.54% of changes in the exchange rate, showing strong ability to explain. DOLS analysis shows strong long-term elasticity, with imports having strong negative effects (β = -16.160, p < 0.021) and GDP having a negative relationship (β = -8.730, p < 0.069Notably, different country-specific fixed effects show up, ranging from -72.845 (Libya) to +227.962 (Mauritania), indicating that different institutional frameworks and structural dynamics affect how exchange rates work. Panel unit root tests confirm first-order integration of variables, while Pedroni cointegration tests (8 out of 11 statistically significant at p < 0.05) validate the presence of long-run equilibrium relationships. It seems that different approaches to managing the exchange rate should be used in different parts of the Maghreb region, especially when dealing with changes in imports and GDP.