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Monetary Policy And Deficits Financing In Jamaica


  • Edward E. Ghartey

    () (Department of Economics, The University of The West Indies)


A vector error-correction model (VECM) is estimated to examine the relationship among interest rates, monetary base, credit claims to the private sector, real income, prices, government spending, budget deficits and exchange rate in Jamaica. Cointegration is used to identify the VECM. The empirical results show that fiscal deficits are monetized in the long-run; the roles of financial services are weak, and inverse price-real output relationship exists in both the short-run and the long-run. Monetary disciplines, reduction in fiscal spending and sound regulatory actions are crucial to reduce the national debt, the inflation and interest rates, crowd in private investments, avert financial crisis and promote economic growth.

Suggested Citation

  • Edward E. Ghartey, 2003. "Monetary Policy And Deficits Financing In Jamaica," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 28(1), pages 81-99, June.
  • Handle: RePEc:jed:journl:v:28:y:2003:i:1:p:81-99

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    References listed on IDEAS

    1. Champ,Bruce & Freeman,Scott & Haslag,Joseph, 2016. "Modeling Monetary Economies," Cambridge Books, Cambridge University Press, number 9781316508671, March.
    2. Dickey, David A & Rossana, Robert J, 1994. "Cointegrated Time Series: A Guide to Estimation and Hypothesis Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 325-353, August.
    3. Ghartey, Edward E., 1998. "Money demand in Jamaica: Evidence from cointegration, error correction modelling, and exogeneity," The North American Journal of Economics and Finance, Elsevier, vol. 9(1), pages 33-43.
    4. Crowder, William J., 1995. "The dynamic effects of aggregate demand and supply disturbances: Another look," Economics Letters, Elsevier, vol. 49(3), pages 231-237, September.
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    Cited by:

    1. Ghartey, E.E., 2008. "Is the Caribbean Community an Optimum Currency Area?," Estudios Economicos de Desarrollo Internacional, Euro-American Association of Economic Development, vol. 8(1), pages 5-36.
    2. Ghartey, Edward E., 2008. "The budgetary process and economic growth: Empirical evidence of the Jamaican economy," Economic Modelling, Elsevier, vol. 25(6), pages 1128-1136, November.

    More about this item


    Vector Error-correction Model; Fiscal Spending; Financial Services; Deficit Finance; and Jamaica;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook


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