Abstract
This study measures the impact of the federal fund rate on the lending rate and the consumer price index in Jordan during the period 1994-2013, relying on monthly data. The study finds that common changes that occur in the U.S. federal fund rate lead to direct changes in the lending rate in Jordan, and these changes are statistically significant. The study also finds that the changes in the U.S. federal fund rate lead to direct changes also in the consumer price index and these changes also are statistically significant.
Highlights
Interest rates are among the significant economic variables that may directly affect the economy
The interest rate performance in the economy depends on the rules and foundations authorized by the State's monetary authorities represented by the Central Banks or the Federal Banks
The interest rate subject has been the focus of attraction in the economic literature by advanced countries and emerging countries with small economies which are open to the outside world and dependent on the industrialized economies
Summary
Interest rates are among the significant economic variables that may directly affect the economy. The reason behind such transition is expecting currency crises and shocks in the economy which leads to fluctuations in the financial regime of the country that pegs the domestic interest rate to the foreign one and results in instability of the exchange rate regime, and reflects adversely on the real economy (Benigno et al, 2007).
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