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Monetary policy and the central bank's securities

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  • Osama Sweidan
  • Aktham Maghyereh

Abstract

Open market operation (OMO) is one of the major instruments of conducting the monetary policy in both developing and developed countries. Using this instrument requires a well-developed secondary financial market. OMO can be implemented by using either government or central bank (CB) securities. Developing countries are using the second which raises a question about CB profits and the effect on the economy. This study, through evidence from a small developing country, Jordan, shows that issuing CB securities causes losses which affect the monetary policy continuity. Moreover, the paper extends a model introduced by Walsh (1998) to study the impact of the CB losses on some macroeconomic variables. The model shows that if the CB profits are part of the objective function then inflation, output and growth of the money supply tend to have a positive bias.

Suggested Citation

  • Osama Sweidan & Aktham Maghyereh, 2006. "Monetary policy and the central bank's securities," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 593-598.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:9:p:593-598
    DOI: 10.1080/13504850500424892
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    References listed on IDEAS

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    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
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    1. 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.
    2. Sweidan, Osama D. & Widner, Benjamin, 2008. "Transparency and central bank losses in developing countries," Research in Economics, Elsevier, vol. 62(1), pages 45-54, March.
    3. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 399-414.
    4. Osama Sweidan & Fadwa Kalaji, 2005. "The central bank cost constraint and output-inflation variability: a note on Cecchetti and Ehrmann 2000," Economics Bulletin, AccessEcon, vol. 5(12), pages 1-6.
    5. Osama D. Sweidan, 2008. "Does Policy Interest Rate Have Asymmetric Adjustment: Case Of Jordan," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 151-158.

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