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The impact of inflation on the financial sector development: Empirical evidence from Jordan

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  • Khaled Batayneh
  • Wasfi Al Salamat
  • Mohammad Q.M. Momani
  • David McMillan

Abstract

In any economy, the financial sector plays a fundamentally important role in achieving economic growth and thus achieving sustainable economic development. Therefore, interest in this sector and the improvement of its performance is considered a strategic goal for any country. Accordingly, this study aims to analyze the short- and long-run impacts of inflation on the development of this sector on the Jordanian economy for the period from 1993 to 2018. To do so, the study uses an auto-regressive distributed lag bound testing approach, which is considered an advanced analytical model. Empirical findings confirmed that there is a statistically significant long- and short-run negative effect of inflation on financial sector development. On the contrary, there is a statistical significant long- and short-run positive impact of economic growth on financial sector performance. In addition, results confirmed that there is a positive support of the previous financial sector policies on financial sector performance in the current period.

Suggested Citation

  • Khaled Batayneh & Wasfi Al Salamat & Mohammad Q.M. Momani & David McMillan, 2021. "The impact of inflation on the financial sector development: Empirical evidence from Jordan," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1970869-197, January.
    • Handle: RePEc:taf:oaefxx:v:9:y:2021:i:1:p:1970869
    DOI: 10.1080/23322039.2021.1970869
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    Cited by:

    1. André Arnaud ENGUENE & Emmanuelle Dorcas MBANGA PAGAL & Armel Romaric WEPAGUIEWE, 2023. "Does the development of financial system influence the level of inflation?," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 14(2), pages 17-32, December.
    2. Zheng, ShiYong & Liu, Hua & Hafeez, Muhammad & Wang, Xiaofeng & Fahad, Shah & Yue, Xiao-Guang, 2023. "Testing the resource curse hypothesis: The dynamic roles of institutional quality, inflation and growth for Dragon," Resources Policy, Elsevier, vol. 85(PA).
    3. Hamdi Becha & Maha Kalai & Kamel Helali, 2023. "Smooth transition regression model relating inflation to economic growth in Tunisia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-26, December.

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