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Asymmetric central bank's preference and inflation rate in Jordan

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  • Osama D. Sweidan

Abstract

Purpose - The purpose of this paper is to examine the hypothesis that a central bank's asymmetric preferences are able to explain inflation rate in a developing country. In addition, it seeks to help comprehend movements of inflation rate in Jordan and to understand Central Bank of Jordan preferences regarding inflation rate and output. Design/methodology/approach - A standard monetary model consists of a central bank's loss function and an economy structure is constructed, which acts as a constraint on the central bank's behavior. Then, a distribute‐lag version of the derived model is estimated using ordinary least squares method. Findings - The empirical evidence from the Jordanian economy shows that inflation rate relies on the variances of inflation rate and the variances of output. This finding supports the hypothesis that a central bank's asymmetric loss function is able to justify inflation rate movements. Moreover, the Jordanian central banker prefers higher inflation rate and higher level of output. Originality/value - The paper provides evidence from a developing country regarding the ability of the asymmetric central bank preferences to justify inflation rate movement. In addition, the paper links central banks' losses with the uncertainty level and inflation rate in the economy.

Suggested Citation

  • Osama D. Sweidan, 2009. "Asymmetric central bank's preference and inflation rate in Jordan," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(4), pages 232-245, October.
    • Handle: RePEc:eme:sefpps:v:26:y:2009:i:4:p:232-245
    DOI: 10.1108/10867370910995690
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    References listed on IDEAS

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    Cited by:

    1. Chesang, Laban K. & Naraidoo, Ruthira, 2016. "Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences," Economic Modelling, Elsevier, vol. 56(C), pages 1-10.
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    3. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.

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