The Effectiveness of Monetary Policy in Jordan during the Period 1992-2019

Authors

1 Orange Jordan, Amman, Jordan

2 Excellencors for Training and Performance Developments, Amman, Jordan

Abstract

This paper aims at investigating the effectiveness of monetary policy and the role of money in enhancing the economic growth and achieving the economic stability in Jordan. Therefore, this study uses quarterly time-series data for Jordan over the period 1992Q1 - 2019Q4 to estimate a reduced form model. The study variables are stationary at the first difference as indicated by Augmented Dickey-Fuller and Phillips-Perron unit root tests. Granger Causality test also revealed the existence of unidirectional causality running from money to the real output, and bidirectional causality between the real output and prices level. Johansen cointegration test clarified the existence of only one cointegrating relationship in the long-run. Moreover, applying Fully Modified OLS and Vector Error Correction models for estimation emphasized the significant positive short and long-run impact of money on the real GDP in Jordan, rejecting the hypothesis of neutrality of money in the long-run. The adjustment coefficient is 42% indicating that 42% of the previous quarter deviation from long-run equilibrium is corrected in the current quarter. Based on these outcomes the study recommends to improve the management of monetary authority, and focus on developing the domestic money and capital markets and their instruments, in order to sustain and strengthen the role of monetary policy in the Jordanian economy. It is also recommended that the fiscal and monetary policies should be designed to be complementary to each other rather than rivals.

Keywords

References

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Iranian Economic Review
Volume 26, Issue 3
September 2022
Pages 563-575

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