Economics at your fingertips  

Monetary policy inertia: case of Jordan

Osama Sweidan ()

Journal of Economic Studies, 2011, vol. 38, issue 2, 144-155

Abstract: Purpose - The purpose of this paper is to examine the inertia of monetary policy in the Jordanian economy, in which the monetary policy is neutral owing to the adoption of a fixed exchange rate with the US dollar. The question of the current paper is: Does monetary policy inertia exist in such an economy despite the fact that the exchange rate is pegged to a foreign currency? Design/methodology/approach - To test the hypothesis of the current paper in Jordan, the Taylor rule, adjusted to be consistent with the context of monetary policy in Jordan, is estimated. Moreover, the model is estimated by two techniques: OLS and the Kalman filter, using quarterly data over the period (1994:1-2007:1). Findings - The empirical evidence from the Jordanian economy shows that monetary policy inertia is highly significant in Jordan. The coefficient of the lagged interest rate is estimated to lie between 0.60 and 0.69. Moreover, the evidence illustrates that both inflation rate and output gap have an insignificant effect on setting the policy rate. Further, the policy interest rate seems to be set gradually in reaction to monetary policy inertia, unobserved variable and foreign interest rate. Originality/value - The paper investigates monetary policy inertia in a developing country whose economy is small, widely open and has a fixed exchange rate with the US dollar.

Keywords: Interest rates; Monetary policy; Developing countries; Jordan (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... RePEc&WT.mc_id=RePEc (text/html)
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:

Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK

Access Statistics for this article

Journal of Economic Studies is currently edited by Professor Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing
Bibliographic data for series maintained by Virginia Chapman ().

Page updated 2023-01-06
Handle: RePEc:eme:jespps:v:38:y:2011:i:2:p:144-155