ANALYZING THE TRANSMISSION MECHANISMS OF MONETARY POLICY IN THE ABSENCE OF A NATIONAL CURRENCY: THE PALESTINIAN CASE

Shaker Sarsour

Middle East Development Journal (MEDJ), 2012, vol. 04, issue 02, 1-30

Abstract: This paper investigates and identifies the channels through which external or internal monetary policy shocks can affect the real economy and inflation in Palestine. Two approaches are used: The vector error correction model and ordinary least square simple regression.In estimating the performance of these models, actual quarterly data is used between Q1 2002 and Q2 2009; for the period of Q1 1996 to Q2 2009, a mix of actual and predicted data is used. Empirical results in general indicate that monetary policy shocks have limited influence on economic activities and inflation in Palestine. However, results show that pass-through from domestic lending interest rates of the US dollar (or Jordanian dinar) is higher than for the new Israeli shekel. They reveal a presence of significant but relatively low pass-through for policy rates onto domestic lending interest rates, and therefore, on real economic activities. Israeli monetary policy has a significant impact on Palestinian real economic activities, mainly net exports and on the inflation rate. Furthermore, the exchange rate channel influences GDP by affecting wealth and net exports. Finally, political conditions have had a significant and important impact on the behavior of the Palestinian people by affecting consumption levels.

Keywords: Palestine; external monetary policy; internal monetary policy; domestic lending interest rate; domestic market (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1793812012500125
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:medjxx:v:04:y:2012:i:02:n:s1793812012500125

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1793812012500125

Access Statistics for this article

Middle East Development Journal (MEDJ) is currently edited by Lyn Squire

More articles in Middle East Development Journal (MEDJ) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().