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Deposit Rate and Lending Rate in Jordan, Which leads Which? A Cointegration Analysis

Osama Sweidan ()

Zagreb International Review of Economics and Business, 2012, vol. 15, issue 1, 37-48

Abstract: This study intends to investigate empirically the long-run relationship between deposit and lending rates in Jordan by utilizing quarterly data over the period (1994-2010). Empirically, we search to identify the dominant interest rate; either deposit rate or lending rate. To achieve the current study goals, we employ the error correction model technique and the asymmetric short-run dynamic model. The empirical evidence of the Jordanian economy illustrates deposit and lending rates have a long-run relationship. Deposit rate leads lending rate. As a result, the short-run lending rate adjustment for the deviation from the long-run equilibrium by about 22 percent in the current period. In the long-run, lending rate adjusts by 90 percent for a change in deposit rate.

Keywords: Monetary policy; Retail interest rate; Symmetric adjustment; Interest rate pass-through; Error correction model. (search for similar items in EconPapers)
JEL-codes: E43 (search for similar items in EconPapers)
Date: 2012
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