IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Towards Adopting Inflation Targeting in Emerging Markets: The (A)symmetric Transmission Mechanism in Jordan

Author Info

Listed author(s):
  • Noura Abu Asab

    ()

    (Department of Economics, University of Sheffield)

  • Juan Carlos Cuestas

    ()

    (Department of Economics, University of Sheffield)

Abstract

This paper is carried out to investigate adopting inflation targeting in Jordan. The interest rate pass-through channel is assessed to underline the possibility and challenges to target inflation when a country imports the credibility of low inflation from abroad. The interest rate pass through is examined within its intermediate lag of action to shed light on the effectiveness of monetary policy. The Johansen approach is performed to estimate the long-run degree of pass-through along with the speed of adjustment to disequilibrium. The dynamic model of Hendry and Doornik (1994) is employed to connect the short-run and long-run, and to estimate the mean lag of adjustment under (a)symmetric market response. The empirical findings suggest that the interest rate pass-through in Jordan is weak and slow and the symmetric mean lags in the loan and deposit market are highly sticky. In addition, an asymmetric adjustment is found in the loan market, where banks are faster to decrease their interest rates following a change in official interest rates, the behaviour which can be explained by the collusive pricing hypothesis. Comparing the results to the two inflation targeters: New Zealand and the UK, the study suggests that Jordan has to move to a more resilient exchange rate arrangement before committing to the lite-form of inflation targeting.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2015_013
File Function: First version, May 2015
Download Restriction: no

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2015013.

as
in new window

Length: 24 pages
Date of creation: May 2015
Handle: RePEc:shf:wpaper:2015013
Contact details of provider: Postal:
9 Mappin Street, SHEFFIELD, S1 4DT

Phone: +44 114 222 3399
Fax: + 44 (0)114 222 3458
Web page: http://www.shef.ac.uk/economics
Email:


More information through EDIRC

Keywords: Passthrough; monetary policy; nonlinearties; Jordan;

Find related papers by JEL classification:

  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
  2. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2010. "Symmetric or Asymmetric Interest Rate Adjustments? Evidence from Greece, Bulgaria and Slovenia," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 39, Hellenic Observatory, LSE.
  3. Scholnick, Barry, 1996. "Asymmetric adjustment of commercial bank interest rates: evidence from Malaysia and Singapore," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 485-496, June.
  4. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
  5. Nikoloz Gigineishvili, 2011. "Determinants of Interest Rate Pass-Through; Do Macroeconomic Conditions and Financial Market Structure Matter?," IMF Working Papers 11/176, International Monetary Fund.
  6. Eijffinger, Sylvester C.W. & Geraats, Petra M., 2006. "How transparent are central banks?," European Journal of Political Economy, Elsevier, vol. 22(1), pages 1-21, March.
  7. David Neumark & Steven A. Sharpe, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 657-680.
  8. Sander, Harald & Kleimeier, Stefanie, 2004. "Convergence in euro-zone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 461-492, April.
  9. Don Bredin & Trevor Fitzpatrick & Gerard O Reilly, 2002. "Retail Interest Rate Pass-Through - The Irish Experience," The Economic and Social Review, Economic and Social Studies, vol. 33(2), pages 223-246.
  10. Walter Enders & Kamol Chumrusphonlert, 2004. "Threshold cointegration and purchasing power parity in the pacific nations," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 889-896.
  11. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
  12. Darine Ghanem, 2010. "Fixed Exchange Rate Regimes and Price Stability: Evidence from MENA Countries," Working Papers 10-16, LAMETA, Universtiy of Montpellier, revised Nov 2010.
  13. Hendry, David F & Doornik, Jurgen A, 1994. "Modelling Linear Dynamic Econometric Systems," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 1-33, February.
  14. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  15. Boris Hofmann & Paul Mizen, 2004. "Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates," Economica, London School of Economics and Political Science, vol. 71, pages 99-123, 02.
  16. Amarasekara, Chandranath, 2005. "Interest Rate Pass-through in Sri Lanka," MPRA Paper 64865, University Library of Munich, Germany.
  17. Aron Drew & Özer Karagedikli, 2007. "Some Benefits of Monetary-Policy Transparency in New Zealand," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 521-539, December.
  18. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
  19. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
  20. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  21. Liu, Ming-Hua & Margaritis, Dimitri & Tourani-Rad, Alireza, 2008. "Monetary policy transparency and pass-through of retail interest rates," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 501-511, April.
  22. Daniel L. Thornton, 2012. "How did we get to inflation targeting and where do we need to go to now? a perspective from the U.S. experience," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 65-81.
  23. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
Full references (including those not matched with items on IDEAS)

The CitEc project has not yet found citations to this item.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:shf:wpaper:2015013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jacob Holmes)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.