IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i19p14625-d1256026.html

Sustainability of Fiscal and Monetary Policies under Fixed Exchange Rate Regime in Jordan

Author

Listed:
  • Essa Saleh

    (Hourani Center for Applied Scientific Research, Al-Ahliyya Amman University, Amman 19328, Jordan)

  • Metri Mdanat

    (Management Sciences Department, Business School, German Jordanian University, Amman 11180, Jordan)

  • Anas Ratib Alsoud

    (Hourani Center for Applied Scientific Research, Al-Ahliyya Amman University, Amman 19328, Jordan)

Abstract

This study aims to analyze the sustainability of fiscal and monetary policies and the relationship between them under a fixed exchange regime that is characterized by high budget deficit and public debt in the past four decades. This study is critical for countries adopting a fixed exchange regime to achieve national priorities. Annual data from 1980 to 2020 were employed using Markov Switching Modelling to assess the sustainability of fiscal and monetary policies by identifying the main dimensions of fiscal and monetary policy that affect their sustainability. The findings show that fiscal policy is dominated by unsustainability, as the number of years of unsustainability was estimated to be more than four times the number of years in which it witnessed sustainability. Regarding monetary policy, sustainability was dominant, as it was found that the number of years of sustainability is about 1.3 times the number of years of unsustainability. Under a fixed exchange rate, there is no evidence confirming that there is sufficient coordination between fiscal and monetary policies. The study suggests that policymakers should follow complementary and balanced fiscal and monetary policies to achieve sustained economic growth.

Suggested Citation

  • Essa Saleh & Metri Mdanat & Anas Ratib Alsoud, 2023. "Sustainability of Fiscal and Monetary Policies under Fixed Exchange Rate Regime in Jordan," Sustainability, MDPI, vol. 15(19), pages 1-15, October.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:19:p:14625-:d:1256026
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/19/14625/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/19/14625/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Vighneswara Swamy, 2020. "Monetary and Fiscal Policy Coordination During Fiscal Dominance Regimes," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 21(3), pages 183-214, July.
    2. Ulrich Ekouala Makala, 2023. "Fiscal and monetary policy coordination and debt sustainability in the CEMAC zone: Evidence from a Markov regime-switching model," Post-Print hal-04020443, HAL.
    3. Mendonça, Mario Jorge & Moreira, Tito Belchior S. & Sachsida, Adolfo, 2021. "Fiscal and monetary policy rules in Brazil: empirical evidence of monetary and fiscal dominance," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    4. Chadha, Jagjit S. & Corrado, Luisa & Meaning, Jack & Schuler, Tobias, 2021. "Monetary and fiscal complementarity in the Covid-19 pandemic," Working Paper Series 2588, European Central Bank.
    5. Moreira, Tito Belchior S., 2011. "Brazil: an empirical study on fiscal policy transmission," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    6. Makala, Ulrich Ekouala, 2023. "Fiscal and monetary policy coordination and debt sustainability in the CEMAC zone: Evidence from a Markov regime-switching model," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 11(1), pages 1-14.
    7. Michael Woodford, 2012. "Inflation Targeting and Financial Stability," NBER Working Papers 17967, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard T. Froyen & Alfred V Guender, 2016. "The Real Exchange Rate in Open-Economy Taylor Rules: A Re-Assessment," Working Papers in Economics 16/10, University of Canterbury, Department of Economics and Finance.
    2. Chen, Minghua & Wu, Ji & Jeon, Bang Nam & Wang, Rui, 2017. "Monetary policy and bank risk-taking: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 31(C), pages 116-140.
    3. Berger, Wolfram & Kißmer, Friedrich, 2013. "Central bank independence and financial stability: A tale of perfect harmony?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 109-118.
    4. Soyoung Kim & Aaron Mehrotra, "undated". "Effects of monetary and macroprudential policies – evidence from inflation targeting economies in the Asia-Pacific region and potential implications for China," GRU Working Paper Series GRU_2016_025, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    5. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.
    6. Christophe Blot & Paul Hubert & Fabien Labondance, 2017. "Does monetary policy generate asset price bubbles ?," Documents de Travail de l'OFCE 2017-05, Observatoire Francais des Conjonctures Economiques (OFCE).
    7. Alfred Duncan & Charles Nolan, 2020. "Reform of the UK Financial Policy Committee," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(1), pages 1-30, February.
    8. Pasquale Filiani, 2022. "Macroprudential Debt-to-Income Ratio and Monetary Policy Rules," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 14(2), pages 161-198, June.
    9. Peterson K. Ozili, 2020. "Does competence of central bank governors influence financial stability?," Future Business Journal, Springer, vol. 6(1), pages 1-20, December.
    10. Warwick J McKibbin & Augustus J Panton, 2018. "Twenty-five Years of Inflation Targeting in Australia: Are There Better Alternatives for the Next Twenty-five Years?," RBA Annual Conference Volume (Discontinued), in: John Simon & Maxwell Sutton (ed.),Central Bank Frameworks: Evolution or Revolution?, Reserve Bank of Australia.
    11. Margarit, Monica-Ionelia, 2022. "CONSIDERATIONS REGARDING THE MOST IMPORTANT CRISIS OF THE 21st CENTURY," Management Strategies Journal, Constantin Brancoveanu University, vol. 55(1), pages 109-116.
    12. Barkan, Oren & Benchimol, Jonathan & Caspi, Itamar & Cohen, Eliya & Hammer, Allon & Koenigstein, Noam, 2023. "Forecasting CPI inflation components with Hierarchical Recurrent Neural Networks," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 39(3), pages 1145-1162.
    13. Philip R. Lane, 2021. "La stratégie de politique monétaire de la Banque centrale européenne," Revue d'économie financière, Association d'économie financière, vol. 0(4), pages 75-89.
    14. Malovaná, Simona & Hodula, Martin & Gric, Zuzana & Bajzík, Josef, 2023. "Macroprudential policy in central banks: Integrated or separate? Survey among academics and central bankers," Journal of Financial Stability, Elsevier, vol. 65(C).
    15. repec:spo:wpmain:info:hdl:2441/2geqol5jud8hgonsak4roj21gh is not listed on IDEAS
    16. Cristina Badarau & Alexandra Popescu, 2015. "Monetary policy and financial stability: what role for the interest rate?," International Economics and Economic Policy, Springer, vol. 12(3), pages 359-374, September.
    17. repec:hal:wpaper:hal-03763108 is not listed on IDEAS
    18. Pasten, Ernesto & Schoenle, Raphael, 2016. "Rational inattention, multi-product firms and the neutrality of money," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 1-16.
    19. Adolfo Barajas & Roberto Steiner & Leonardo Villar & Cesar Pabon, 2014. "Inflation Targeting in Latin America," Research Department Publications IDB-WP-473, Inter-American Development Bank, Research Department.
    20. Julio A. Carrillo & Enrique G. Mendoza & Victoria Nuguer & Jessica Roldán-Peña, 2021. "Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 37-73, July.
    21. Darracq Pariès, Matthieu & Körner, Jenny & Papadopoulou, Niki, 2019. "Empowering central bank asset purchases: The role of financial policies," Working Paper Series 2237, European Central Bank.
    22. Collard, Fabrice & Boissay, Frédéric & Galì, Jordi & Manea, Cristina, 2021. "Monetary Policy and Endogenous Financial Crises," TSE Working Papers 21-1277, Toulouse School of Economics (TSE), revised Apr 2023.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:19:p:14625-:d:1256026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager The email address of this maintainer does not seem to be valid anymore. Please ask MDPI Indexing Manager to update the entry or send us the correct address (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.