Does Monetary Policy Affect Economic Growth in Jordan? Evidence from Ordinary Least Square Models

Mohamed Ibrahim Mugableh

doi:10.5539/ibr.v12n1p27

Abstract

The main objective of this paper is to analyze equilibrium and dynamic causality relationships between monetary policy tools and economic growth in Jordan for the period (1990-2017). For this purpose, it considers the autoregressive distributed lag (ARDL) and vector error correction (VEC) models estimations. The results of ARDL approach show that monetary policy variables (i.e., real interest rate and money supply) have positive impact on economic growth in long-run and short-run except inflation rate. In addition, the results of VECM indicate bidirectional causal relationships between economic growth and monetary policy variables in long-run and short-run.

Highlights

The aim of this paper is to examine equilibrium and dynamic causality relationships between monetary policy instruments and economic growth in Jordan
Appendices A, B, C, and D show that economic growth rate (gross domestic product (GDP)), real interest rate (IR), money supply (M2), and inflation rate (IFR) registered an annual growth rate of 5%, 8.5%, 9.6%, and -2%, respectively
The advantage of the autoregressive distributed lag (ARDL) approach is that it allows the nonlinear relationship among the GDP, the IR, the M2, and the IFR

Summary

Introduction

The aim of this paper is to examine equilibrium and dynamic causality relationships between monetary policy instruments and economic growth in Jordan. The government of Jordan has implemented Jordan economic growth plan 2018-2022 to stabilize the macroeconomic indicators. This will be achieved through a 5% growth rate (USD 1.8 billion of growth per year) in top five contributors sectors to GDP which are finance, government services, transport, manufacturing, and tourism & hospitality (Jordan Economic Growth Plan Report 2018-2022, 2018). Different studies examined the impact of monetary policy tools on economic growth. The results of some studies confirmed that there is no impact of monetary policy on economic growth (see for example Kamaan, 2014; Monteil et al, 2012; Lashkary & Kashani, 2011; Buigut, 2009). The findings of other studies confirmed that monetary policy is vital for economic growth (i.e., Havi & Enu, 2014; Fasanya et al, 2013; Kareem et al, 2013; Vinayagathasan, 2013; Chaudhry et al, 2012; Coibion, 2011; Amarasekara, 2009; Suleiman et al, 2009; Ali et al, 2008; Rafiq & Mallick, 2008; Khabo & Harmse, 2005)

Objectives

Results

Conclusion