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The Monetary Transmission Mechanism in Jordan

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Listed author(s):
  • Tushar Poddar
  • Hasmik V Khachatryan
  • Randa Sab
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    Abstract

    This paper examines monetary transmission in Jordan using the vector autoregressive approach. We find that the real 3-month CD rate, the Central Bank's operating target, affects bank retail rates and that monetary policy, measured by the spread between the 3-month CD rate and the U.S. Federal Funds rate, is effective in influencing foreign reserves. We do not find evidence of monetary policy affecting output. Output responds very little to changes in bank lending rates. Furthermore, equity prices and the exchange rate are not significant channels for transmitting monetary policy to economic activity. The effect of monetary policy on the stock market seems insignificant.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/48.

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    Length: 28
    Date of creation: 01 Feb 2006
    Handle: RePEc:imf:imfwpa:06/48
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    Keywords: Economic models; Exchange rates; Bank rates; Jordan; Foreign exchange reserves; Monetary policy; Stock markets; transmission mechanism; monetary transmission; monetary transmission mechanism; central bank; inflation; Economywide Country Studies: Asia including Middle East; Money And Interest Rates; Monetary Policy; Central Banking; And The Supply Of Money And Credit;

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    1. Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, International Monetary Fund.
    2. C. John McDermott & Paul Cashin, 1995. "Informational Efficiency in Developing Equity Markets," IMF Working Papers 95/58, International Monetary Fund.
    3. Disyatat, Piti & Vongsinsirikul, Pinnarat, 2003. "Monetary policy and the transmission mechanism in Thailand," Journal of Asian Economics, Elsevier, vol. 14(3), pages 389-418, June.
    4. By James Morsink & Tamim Bayoumi, 2001. "A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-2.
    5. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    6. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
    7. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
    8. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    9. Chen, Gong-meng & Firth, Michael & Rui, Oliver M, 2001. "The Dynamic Relation between Stock Returns, Trading Volume, and Volatility," The Financial Review, Eastern Finance Association, vol. 36(3), pages 153-173, August.
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    Cited by:

    1. Osama D. Sweidan, 2009. "Asymmetric central bank's preference and inflation rate in Jordan," Studies in Economics and Finance, Emerald Group Publishing, vol. 26(4), pages 232-245, October.
    2. Poghosyan, Tigran, 2011. "Slowdown of credit flows in Jordan in the wake of the global financial crisis: Supply or demand driven?," Economic Systems, Elsevier, vol. 35(4), pages 562-573.
    3. Muhammad, Omer & de Haan, Jakob & Scholtens, Bert, 2014. "Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan," MPRA Paper 56161, University Library of Munich, Germany.
    4. Abouwafia, Hashem E. & Chambers, Marcus J., 2015. "Monetary policy, exchange rates and stock prices in the Middle East region," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 14-28.
    5. Muhammad Naveed Tahir, 2012. "Relative Importance of Monetary Transmission Channels in Inflation Targeting Emerging Economies," EcoMod2012 4092, EcoMod.
    6. Sheikh Khurram Fazal & Muhammad Abdus Salam, 2013. "Interest Rate Pass-Through: Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(1), pages 39-62, Jan-June.
    7. Ziaei, Sayyed Mahdi, 2009. "Assess The Long Run Effects Of Monetary Policy On Bank lending,Foreign Asset and Liability In MENA Countries," MPRA Paper 14331, University Library of Munich, Germany.

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